Chapter 7 Bankruptcy VS Chapter 11, VS Chapter 13: What Should I File?

by DubG | Sep 30, 2023 | Bankruptcy 411, DEBT

Introduction

I may need to file bankruptcy soon, so I wanted to know the difference between Chapter 7 Bankruptcy vs. Chapter 11 and Chapter 13.  I know first-hand the stress and anxiety that come with overwhelming debt. Bankruptcy can be a way out, but it can also be overwhelming, confusing, and intimidating. One of the most common questions people have is, “What is the difference between Chapter 7, 11, and 13 bankruptcy?” In this article, I will break down the key differences between these three types of personal bankruptcy and help you understand which one might be right for you.

Bankruptcy is not a one-size-fits-all solution. There are different types of bankruptcy, each with its own rules and requirements. Chapter 7, Chapter 11, and Chapter 13 are the most common types of personal bankruptcy. Chapter 7 is known as the “liquidation party,” while Chapter 13 is the “debt diet plan.” Chapter 11 is more commonly used for businesses, but individuals can file for Chapter 11 as well. In this article, we will focus on Chapters 7 and 13, which are the most commonly filed types of personal bankruptcy.

Key Takeaways

• Bankruptcy is not a one-size-fits-all solution, and there are different types of bankruptcy, each with its own rules and requirements.
• Chapter 7 is known as the “liquidation party,” while Chapter 13 is the “debt diet plan.
• Understanding the differences between Chapter 7 and Chapter 13 bankruptcy can help you make an informed decision about which one might be right for you.

Chapter 7, vs Chapter 11, vs Chapter 13: A Tale Of Three

So, you’re in a financial pickle, and you’re considering filing for bankruptcy. Don’t worry, we’ve all been there. But before you take the plunge, let’s talk about the three chapters of personal bankruptcy: 7, 11, and 13.

First off, let me just say that each type can be used for business or personal purposes, but today we’re focusing on personal bankruptcy. So, what’s the difference between these three chapters? Let’s break it down.

Chapter 7 is like the “get out of jail free” card in Monopoly. It’s a straight-up liquidation of your assets to pay off your debts. You get to keep some exempt property, but everything else is fair game. It’s quick and dirty, and you can be debt-free in as little as a few months. But be warned, it’s not for everyone. You have to pass a means test to qualify, and not all debts can be discharged.

Chapter 11 is like a game of chess. It’s a reorganization of your debts, and you get to keep your assets. You come up with a repayment plan, and if your creditors approve it, you’re good to go. But it’s a long and complicated process, and it’s usually reserved for businesses or individuals with high levels of debt.

Chapter 13 is like a trip to the DMV. It’s a repayment plan that lasts three to five years, and you get to keep your assets. You make monthly payments to a trustee, who distributes the money to your creditors. It’s a good option if you have a steady income and want to keep your assets, but it’s not a quick fix.

So, there you have it. There are three chapters and three different approaches to personal bankruptcy. Which one is right for you? That’s a decision only you can make. But remember, bankruptcy is not the end of the world. It’s a fresh start—a chance to wipe the slate clean and start over. And who knows, maybe next time you’ll pass Go and collect $200.

Fun fact: There are actually a few more types of bankruptcy you don’t hear about in mainstream

• Chapter 9: For municipalities and government organizations
• Chapter 12: For family farmers and fishermen with regular income, so they’re able to continue to work, make smaller, more manageable payments, and pay off all or part of their debts within 3-5 years.
• Chapter 15: Foreign debtors

Comparing Bankruptcy Chapters: 7, 11, and 13

Chapter 7: The Liquidation Party

Ah, Chapter 7 bankruptcy. The party where your debts get liquidated and your assets get, well, liquidated too. It’s like a going-out-of-business sale, but for your finances.

So, what exactly is Chapter 7 bankruptcy? It’s a type of liquidation bankruptcy where a trustee is appointed to sell off your non-exempt assets and use the proceeds to pay off your creditors. And by non-exempt assets, we mean everything except the clothes on your back (unless they’re designers, then they might be fair game).

But don’t worry; you won’t be left with nothing. There are exemptions for certain types of property, like your primary residence (as long as you’re not living in a mansion) and your trusty old Honda Civic (as long as it’s not a vintage Ferrari).

Once the trustee has sold off your assets and paid off your creditors (or as many as possible), any remaining debts are discharged. It’s like a get-out-of-debt-free card, but with a lot more paperwork.

Of course, not everyone can just waltz into Chapter 7 bankruptcy. You have to pass the means test first, which basically determines if you make too much money to qualify for Chapter 7. It’s like trying to get into an exclusive nightclub, but instead of a bouncer, you have a calculator.

So, if you’re drowning in debt and don’t mind parting with some of your stuff, Chapter 7 bankruptcy might be the liquidation party you’ve been waiting for. Just don’t forget to bring your bankruptcy trustee a drink – they’re the ones doing all the heavy lifting.

Chapter 13: The Debt Diet Plan

So, you’re drowning in debt, and you’re not sure how to get out of it. You’ve considered filing for bankruptcy, but you don’t want to lose your house or your car. Well, have no fear, Chapter 13 is here!

Chapter 13 bankruptcy is like a debt diet plan. It’s not as extreme as Chapter 7, which is like liposuction for your finances. Instead, it’s a repayment plan that allows you to keep your property while you pay off your debts over a period of three to five years.

The key to Chapter 13 is having a regular income. If you’re unemployed or underemployed, this may not be the plan for you. But if you have a steady job, you can use your disposable income to pay off your debts.

Chapter 13 is great for people who are behind on their mortgage payments. It allows you to catch up on those payments over the course of the repayment plan. And if you’re facing foreclosure, Chapter 13 can help you keep your house.

But what about your other debts? Chapter 13 can also help with unsecured debt, like credit cards and medical bills. You’ll have to pay back a portion of those debts, but the rest will be discharged at the end of the repayment plan.

One thing to keep in mind is that Chapter 13 is not for everyone. If you have a lot of secured debts, like car loans or mortgages, you may not be able to afford the repayment plan. And if you don’t have a regular income, you won’t be able to make the payments.

Overall, Chapter 13 is a great option for people who want to keep their property and pay off their debts over time. It’s like a debt diet plan that helps you shed those extra pounds of debt. So, if you’re ready to get your finances in shape, talk to a bankruptcy attorney about Chapter 13.

Eligibility Rules: Who Gets to Play?

So you’re thinking about filing for bankruptcy? Well, before you get too excited, let’s talk about who actually qualifies for the game.

First of all, let’s talk about the different types of bankruptcy. We’ve got Chapter 7, Chapter 11, and Chapter 13. Each one has its own eligibility requirements, so pay attention.

If you’re an individual looking to file for bankruptcy, you’ll likely be looking at Chapter 7 or Chapter 13. Chapter 11 is typically reserved for businesses, but we’ll get to that later.

Let’s start with Chapter 7. To be eligible for Chapter 7, you’ll need to pass the means test. This test compares your income to the median income in your state. If your income is below the median, you’re good to go. If it’s above the median, you may still be eligible, but you’ll need to jump through some extra hoops.

Now, let’s move on to Chapter 13. This type of bankruptcy is a bit different. Instead of liquidating your assets to pay off your debts (like in Chapter 7), you’ll be setting up a payment plan to pay off your debts over a period of 3-5 years. To be eligible for Chapter 13, you’ll need to have a regular income and your debt limit must be within certain limits.

But what about businesses? Well, if you’re a business looking to file for bankruptcy, you’ll likely be looking at Chapter 11. This type of bankruptcy allows businesses to restructure their debts and continue operating. To be eligible for Chapter 11, you’ll need to meet certain requirements, such as having a certain amount of debt and being able to show that you have a feasible plan for reorganization.

In conclusion, bankruptcy isn’t a game for everyone. You’ll need to meet certain eligibility requirements, depending on the type of bankruptcy you’re looking to file. So before you start celebrating, make sure you’re actually eligible to play.

The Bankruptcy Court: Not Your Average Courtroom Drama

When you think of a courtroom, you might picture a dramatic trial with a judge, jury, and lawyers fighting for their clients. But the bankruptcy court is a different beast altogether. It’s more like a support group for people who have hit rock bottom financially.

I mean, think about it. Everyone there is in the same boat; they’re broke and looking for a way out. It’s like a weird, sad version of summer camp. And instead of making friendship bracelets, we’re all just trying to figure out how to pay off our debts.

But don’t get me wrong, there are still some key players in the bankruptcy court drama. There’s the court-appointed trustee, who is basically the camp counselor. They oversee the case and make sure everything is fair and square. And then there’s the bankruptcy trustee, who is like the camp nurse. They take care of all the medical (financial) needs of the campers (debtors).

And of course, there’s the bankruptcy court itself—the place where all the magic happens. It’s not your typical courthouse, with grandiose architecture and marble floors. It’s more like a sad, windowless room with fluorescent lighting and uncomfortable chairs. But hey, at least we’re all in it together.

So if you find yourself in bankruptcy court, just remember—you’re not alone. We’re all in this together, trying to climb out of the financial hole we’ve dug ourselves into. And who knows? Maybe you’ll even make a friend or two along the way.

The Aftermath: Life After Bankruptcy

So, you’ve filed for bankruptcy and now you’re wondering what’s next. Well, let me tell you, life after bankruptcy is like trying to navigate a minefield blindfolded. It’s not easy, but it’s not impossible either.

First things first, your credit score is probably in the toilet. I mean, it’s not like you were planning on buying a house or a car anytime soon, right? But don’t worry; you can always rent a house and take the bus. Who needs a car anyway? Plus, you can always use your bike to get around. It’s a great exercise!

Now, let’s talk about your credit report. It’s going to show that you filed for bankruptcy, but who cares? It’s not like you’re trying to get a job in finance or anything. And if you are, well, good luck with that. But seriously, don’t let your credit report get you down. You can always work on building your credit back up.

Speaking of building your credit back up, there are plenty of credit counseling services out there that can help you with that. Just make sure you do your research and find a reputable one. And if you’re really struggling with debt, there are also debt management programs that can help you get back on track.

Now, let’s talk about the fresh start that bankruptcy can give you. It’s like hitting the reset button on your finances. You can finally breathe a little easier knowing that you don’t have to worry about those pesky creditors calling you all the time. Plus, you can start saving money and actually have a little bit of a cushion for emergencies.

In conclusion, life after bankruptcy is not easy, but it’s not the end of the world either. You just have to be willing to make some sacrifices and work hard to rebuild your credit. And who knows? Maybe one day you’ll look back on this experience and laugh. Or cry. But hopefully laugh.

The Cost of Going Broke: Bankruptcy Fees

Oh, you’re thinking about filing for bankruptcy? Great, let’s talk about the cost of going broke. Because, let’s be real, you’re already broke, right?

First things first, you’ll need to pay a filing fee to the court. The filing fee for Chapter 7 bankruptcy is $335; for Chapter 11, it’s $1,717; and for Chapter 13, it’s $310. Don’t worry, you can put it on your credit card! Oh, wait…

But that’s not all! You’ll also need to pay for credit counseling and debtor education courses, which can range from $20 to $100 each. And don’t forget about the attorney fees! You’ll need a lawyer to guide you through the process, and they don’t work for free. The cost of a bankruptcy lawyer can vary depending on your location and the complexity of your case, but it can easily run into the thousands of dollars.

But wait, there’s more! The government also charges fees for various services, such as a $75 fee for converting your case from Chapter 7 to Chapter 11. Because, you know, why not add insult to injury?

So, to summarize, filing for bankruptcy can cost you a pretty penny. But hey, at least you’ll get a fresh start, right? Just don’t forget to budget for those bankruptcy fees. Maybe you can sell your plasma or start a lemonade stand to cover the costs. Good luck!

The Untouchables: Exemptions and Non-Dischargeable Debts

As I dug deeper into the world of personal bankruptcy, I discovered that not all debts are created equal. Some debts are considered “non-dischargeable,” meaning they cannot be wiped away with a bankruptcy filing. These debts are like the untouchables of the bankruptcy world—they’re off-limits, no matter how hard you try.

So, what are these non-dischargeable debts? Well, they include things like student loans, alimony, child support, and tax debts. Yup, you heard me right—even bankruptcy can’t make those go away. It’s like trying to get rid of a bad rash with a bottle of ketchup; it’s just not gonna work.

But wait, there’s more! Not only are there non-dischargeable debts, but there are also “exempt assets” that are protected from creditors during bankruptcy. These assets are like the chosen ones; they get to live their best lives while all the other assets are up for grabs. Some common exempt assets include your primary residence, personal property like clothing and furniture, and retirement accounts. It’s like a game of musical chairs, but instead of chairs, it’s assets, and some of them get to sit this one out.

Now, before you start planning your bankruptcy filing, keep in mind that exemptions vary by state. So, what might be exempt in one state might not be in another. It’s like trying to navigate a maze blindfolded—you never know what you’re going to run into.

And finally, let’s talk about “non-priority debts.” These are debts that are dischargeable in bankruptcy, but they’re not given priority over other debts. So, if there’s not enough money to go around, these debts might not get paid at all. It’s like being in a popularity contest, but instead of being the most popular, you’re just trying not to be the least popular.

In conclusion (oops, I said it), bankruptcy is a complicated process with lots of rules and regulations. But understanding the difference between non-dischargeable debts, exempt assets, and non-priority debts can help you make informed decisions about your financial future. It’s like having a map to guide you through that maze—you might still stumble along the way, but at least you know where you’re going.

The Wild Cards: COVID-19 Pandemic and the CARES Act

Well, well, well, look who decided to crash the party. The COVID-19 pandemic and the CARES Act have thrown a wrench in the bankruptcy game. Just when we thought we had it all figured out, these wild cards came in and messed things up.

Let’s start with the pandemic. It’s like that one guest who shows up uninvited and then proceeds to take over the entire party. The pandemic has caused financial chaos for many people, leading to job losses and economic instability. As a result, bankruptcy filings have increased significantly.

But wait, there’s more! The CARES Act was passed in response to the pandemic, and it includes some provisions that affect bankruptcy cases. For example, the Act provides for stimulus payments to individuals, but there was some confusion about whether these payments could be seized by bankruptcy trustees. The good news is that the Act clarified that these payments are exempt from seizure in bankruptcy cases.

On the other hand, the CARES Act also made some changes to the bankruptcy code that could be problematic for some debtors. For example, the Act temporarily increased the debt limit for small business bankruptcies under Chapter 11. This might seem like a good thing, but it could actually make it more difficult for some small businesses to reorganize successfully.

Overall, the COVID-19 pandemic and the CARES Act have added some unexpected twists to the already complicated world of bankruptcy. It’s like playing a game of Jenga, but with more blocks and a few surprise rules thrown in. Just when you think you have a solid plan, something comes along and changes everything.