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Which Bankruptcy is Best for your Situation: Chapter 7 or Chapter 11?

February 10, 2020BankruptcyE. Orum Young

When you’re considering bankruptcy, you have several options for how to proceed. While Chapter 7 is the most common form of bankruptcy, it’s not the only option, and some people chose instead to go with Chapter 11 or Chapter 13.

One thing to keep in mind is that Chapter 7, Chapter 11 and Chapter 13 bankruptcies are all going to impact your credit, and in each case, not all your debts will likely get wiped out. A lot of this comes down to a key issue: do you want your debts to be discharged or restructured? The question isn’t as simple as it sounds, and before making any decisions, it’s always important to seek the advice of an experienced bankruptcy attorney who can outline the consequences and benefits of any decision you make. An attorney can review your situation and help you decide the best chapter for you.

Filing for bankruptcy is a major decision and a serious step that should only be used as a last resort. If you’re ready to start thinking seriously about bankruptcy, here are some factors to consider.

What’s the Difference Between Chapter 7 and Chapter 11 Bankruptcy?

It’s important to consider the nature of your debts before deciding if bankruptcy is right for you. For one thing, not all your debts can be discharged during bankruptcy, including student loans, past-due income taxes and child support.  And Chapter 7 and Chapter 11 are intended to help people in different ways. For example, in Chapter 13, your debt is eliminated through a repayment plan that lets you pay back a portion of the debt over a 3-to-5 year period. Chapter 7 bankruptcy doesn’t require a repayment plan, but you are required to liquidate or sell assets to pay back creditors. Chapter 11 bankruptcy is often used by large businesses to let them stay active while putting together a reorganization plan to repay creditors.

If you’re a business owner struggling with debt related to your company, let’s explore how Chapter 7 or Chapter 11 bankruptcy might assist your financial needs.

What Does Chapter 7 Bankruptcy Do

Under Chapter 7, you quickly eliminate your unsecured debts. That can include personal loans and credit card debt. But it also requires you to surrender your assets. 

While Chapter 7 is often used by individuals, partnerships or corporations can use it as well if they have assets that can be liquidated to cover debts. Once an individual or business files for Chapter 7, collection actions come to a halt, but it also starts the liquidation process for the sale of your assets to pay what’s owed to creditors. 

Chapter 7 provides a quick way to get out from under your debts and is considered a strong option for those who don’t own much property and don’t want to be stuck with a repayment plan. 

What Does Chapter 11 Bankruptcy Do?

Chapter 11 is open to almost any individual or business and does not have any specific income or debt-level limits. Chapter 11 lets you keep certain assets you might lose under Chapter 7 bankruptcy because essentially you’re establishing a reorganization plan to restructure your debts and help repay creditors over time. While it’s most often used by large businesses, individuals and small-business owners will also find it useful, especially if they don’t qualify for Chapter 13 bankruptcy, which requires them to have a steady income.

Filing Chapter 11 bankruptcy as a business helps you keep your business alive while paying creditors over a period of time. You’ll have four months to come up with a reorganization plan after filing your petition, although it could get extended. By comparison, firms in a Chapter 7 bankruptcy are past the reorganization stage. Chapter 11 bankruptcy is designed to give your company an opportunity to once again become a financially healthy organization.

Like Chapter 7, Chapter 11 requires a trustee to get appointed to oversee the process. But instead of liquidating your assets, the trustee will supervise the assets of the debtor. 

Either way, it’s always important to consult with an attorney familiar with these laws. 

Trust an Experienced Bankruptcy Attorney in Louisiana

When you’re considering this process, a good bankruptcy attorney can help you understand which approach to bankruptcy is going to work best for your situation, and how to best proceed afterward. 

Orum Young Law has more than 35 years helping the people of Northeastern Louisiana file for bankruptcy and regain control of their finances. In those 35 years, we have filed more than 20,000 cases and experienced unbelievable success. We help our clients understand the basic aspects of their case, including how to determine their expenses and handle any necessary filings. 

Contact us today at (318) 450-3192 to schedule your free case review and start protecting your family’s future. 

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