Chapter 7 Bankruptcy | Understanding Chapter 7, 11, and 13 Bankruptcy (Pt. 1)

Chapter 7 Bankruptcy | Understanding Chapter 7, 11, and 13 Bankruptcy (Pt. 1)

Chapter 7 Bankruptcy | Bankruptcy means seeking help to get back on strong financial footing. That often means forfeiting some of your property through the process of liquidating your assets. But specifically what happens to your property in bankruptcy is entirely based on what form of bankruptcy you file for, and there are various forms of bankruptcy that people file for. In this article we will outline the various forms of bankruptcy you can file for: Chapter 7, 11, and 13.

Chapter 11 Bankruptcy

Under Chapter 11 bankruptcy, a business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits.  If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.

A discharge of debts is the main reason you enter Chapter 11 bankruptcy, and it happens after you have made all required payments to your unsecured creditor class. After paying everything off you will ask the court for a discharge of the remainder of your unsecured debts. This motion prevents any of these creditors from collecting on any of the debts in the plan. This is the end of your Chapter 11 bankruptcy.

Chapter 13 and Chapter 7 Bankruptcy

Chapter 13

Chapter 13 bankruptcy is designed to allow you to keep all of your property, but is also determined by your property. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.

Chapter 7

When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.

During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors.  Just because your assets are being sold, that does not mean that all of your property needs to be sold.

Differences in Chapter 7 and 13 Bankruptcy

In Chapter 13 bankruptcy, a trustee will not sell your nonexempt assets and distribute the proceeds to your creditors. That’s how it works in Chapter 7 bankruptcy. Rather, you will need to put together a repayment plan that shows your creditors how you plan to pay back some or all of your creditors. You get to keep your property in exchange for paying back a certain amount of the debt you owe. But remember that the more nonexempt assets you have, the more you will need to pay to unsecured creditors.

When you file for Chapter 7 bankruptcy, a trustee takes the nonexempt property, sells it, and uses the proceeds to pay your general unsecured creditors. But because you keep all of your property with Chapter 13, it’s unfair to your unsecured creditors if they do not get paid as much as they would have had you filed for Chapter 7.

Because of this, if you file Chapter 13 and create a repayment plan, you will still need to pay the general unsecured creditors a dividend at least equal to the value of your nonexempt assets. So if you have a large amount of nonexempt property, you hay have to repay the unsecured debts in full.

Secured Debt

A creditor is able to secure a debt by foreclosing on or repossessing an asset if you default on that loan. That’s the way they make sure they earn back at least a portion of the money they loaned you. These debts are treated differently in Chapter 13 than general unsecured debts (like credit cards or medical bills) because Chapter 13 bankruptcy does not wipe of the lender’s lien on the property that is securing the loan.

To keep your property, you will need to catch up on any payments you have missed on the secured debts. Still, Chapter 13 can be helpful because it allows you to set up a repayment plan to back-pay the secured debts you have been delinquent on. – Simon Resnik

Specializing in bankruptcy and foreclosure law for over 20 years. Call attorney David Pinkston for a free consultation today: 904.306.5791. #FloridaBankruptcyAttorney #FloridaBankruptcy

If you are thinking about #bankruptcy or #foreclosure in the Jacksonville, Florida area, you should call attorney David Pinkston. David is very experienced with all aspects of bankruptcy law yet very personable and easy to talk to. Call Us Today! 904.306.5791