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What type of bankruptcy is right for me? An overview of Chapter 7, Chapter 13 and Chapter 11.

Posted by Jeffrey Foster | Dec 10, 2012 | 0 Comments

As a bankruptcy lawyer, I am often asked about the difference between different types of bankruptcy.  Essentially, there are three different types of bankruptcy cases available for individuals and businesses:  (1) Chapter 7; (2) Chapter 13; and (3) Chapter 11.

The most common type of bankruptcy is Chapter 7. Both individuals and businesses are eligible to file Chapter 7.  However, only individuals are eligible to receive a discharge in Chapter 7.  A discharge is a bankruptcy court order that absolves individuals of debts eligible for discharge.

To qualify for Chapter 7, a thorough analysis of assets, liabilities, income, expenses and financial affairs should be undertaken by an experienced bankruptcy lawyer.  Since Chapter 7 is a "liquidation" bankruptcy, an individual or business may lose valuable assets if exemptions are not available to protect such assets.  An exemption is a state or federal law that protects assets from creditors up to a certain dollar amount.  For example, in Washington State the homestead exemption to protect equity in a primary residence is $125,000.  This means that a primary residence will be liquidated in Chapter 7 only if the equity in the residence exceeds $125,000.

If all assets are deemed exempt, a Chapter 7 case can last between 80-100 days from the date of filing.  Under federal bankruptcy law, a court date (called the Meeting of Creditors or 341 Meeting) is scheduled between 20-40 days after the filing date.  In an individual case, the discharge order is entered by the bankruptcy court 60 days after the court date.

A Chapter 7 case is ideal for those who qualify and who are not in need of debt reorganization.  For those who desire to reorganize debt such as a mortgage or auto loan, or who do not qualify for Chapter 7, a Chapter 13 can be an efficient means of repaying debt over 36 or 60 months.  Although mortgage debt is not currently eligible for modification in a Chapter 13, junior liens such as 2nd mortgage loans and home equity lines of credit (HELOC) may be stripped and eliminated if such loans are unsecured.  However, a Chapter 13 debtor must complete the Chapter 13 plan in order for the junior liens to be stripped and discharged.

Chapter 13 is also a good option for individuals who would like to repay tax debt or other non-dischargeable debt over time.  Chapter 13 is NOT available for businesses.

A business or individual may file a Chapter 11.  Chapter 11 may be a good option for individuals who's debt exceeds the Chapter 13 secured/unsecured debt limits.  Chapter 11 may also be a good option for a business that needs to stave off a lawsuit, foreclosure or other collection action and has income sufficient to fund a Chapter 11 plan of reorginzation.  Be careful, Chapter 11 cases are difficult to confirm and quite expensive to prosecute.  Oftentimes, an out-of-court settlement agreement with a difficult creditor is preferable to rushing into bankruptcy court.

For more information on the different bankruptcy chapters as well as non-bankruptcy options, please feel free to contact us for a free consultation.  We look forward to the opportunity of assisting you with gaining an understanding of the options available to you to resolve your debt problems.

About the Author

Jeffrey Foster

Attorney Jeffrey Foster is the founding partner of Foster Law Offices. An accomplished litigation and transaction attorney, Jeff proudly represents Washington individuals and businesses in legal matters Personal Injury, Bankruptcy, Real Estate and Civil Litigation.

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Foster Law Offices

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With offices on the Big Island of Hawaii and Washington State, Foster Law Offices represents clients in personal injury and real estate matters. We are also available for representation in a wide range of civil litigation cases.

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Attorney Jeffrey Foster proudly represents individuals and business who are looking for representation and strategic legal advice. From Kailua-Kona to Honolulu to Seattle, Tacoma and Everett, Mr. Foster takes great pride in his cases and the results obtained for his clients. Thank you for visiting the online home for Mr. Foster's Hawaii practice, Foster Law Offices LLLC and his Washington practice, The Law Offices of Jeffrey E. Foster, PLLC. We look forward to the opportunity to assist you in resolving your case, claim, transaction or litigation matter. Thank you and Mahalo.