Chapter 11 : Often called the reorganization chapter, chapter 11 allows corporations, partnerships, and some individuals to reorganize, without having to liquidate all assets. In filing a chapter 11, the debtor presents a plan to creditors which, if accepted by the creditors and approved by the court, will allow the debtor to reorganize personal, financial or business affairs and again become a financially productive individual or business.
Chapter 12 : Chapter 12 is designed for "family farmers" or "family fishermen" with "regular annual income. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period "for cause. Chapter 13 : An individual with a regular income who is overcome by debts, but believes such debt can be repaid within a reasonable period of time, may file under chapter 13 of the bankruptcy code.
Filing Chapter 11 bankruptcy allows businesses to stay open and continue operating while reworking their financial obligations. Filers are able to put forth a reorganization plan, which can include downsizing and expense reduction plans. Many large businesses have filed Chapter 11 bankruptcy and come out of it later to continue operating, including General Motors and Chrysler, which both filed for bankruptcy in With the advent of the COVID pandemic, a veritable avalanche of bankruptcies is occurring, including such high-profile companies as J.
Crew and J. Chapter 13 bankruptcy can only be filed by individuals with a stable income. Debt limitations are also part of Chapter 13 eligibility, and the limits change regularly. Chapter 7 does have income limits that vary by state. For Chapter 13 individuals must submit and implement a repayment plan for debts to be paid within three to five years. The filer can generally keep some assets, such as a home and an automobile.
Chapter 13 bankruptcy requires the appointment of a trustee, something that is optional for Chapter 11 bankruptcy. The main reason to file for Chapter 11 bankruptcy is to be able to prevent a business from permanently closing. Of course, the company needs to be in such a position that the restructuring of its debt makes financial sense. By staying in business while reorganizing debt, the company has a fighting chance at solvency. The downsides are its expense and complexity. Smaller businesses often lacked the resources to use it.
The main reason for an individual to file for Chapter 13 bankruptcy is to prevent the liquidation of all their assets. Chapter 11 may also prevent a forced home sale, but is usually too expensive and complicated a procedure for most people. Of course, not everyone has the choice to use Chapter Chapter 13 involves the appointment of a trustee ; with Chapter 11 this is optional and not usually done. The court can extend the time frame of the plan for debtors who need more time to make the required payments.
The approval process for a Chapter 13 bankruptcy is generally much more expedient. The commitment period can be shortened but never extended except in the following special circumstance. The Coronavirus Aid, Relief, and Economic Security CARES Act , signed into law by the president on March 27, , made a number of changes to bankruptcy laws designed to make the process more available to businesses and individuals economically disadvantaged by the pandemic.
Department of Justice. The National Law Review. Debt Management. Student Loans. Corporate Finance. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. How long it takes to achieve a discharge: Usually under six months. How long it takes to achieve a discharge: Usually three to five years, depending on the repayment plan.
Mark on credit report: Remains on your credit report for 10 years from filing date. Mark on credit report: Remains on your credit report for 7 years from filing date. One of the fastest routes to resolve overwhelming debt. Filing a bankruptcy petition halts collection efforts and legal action from creditors.
Can help you resolve your debts while retaining certain assets or getting caught up on secured debts, like an auto loan or mortgage. Though rare, the trustee can sell nonexempt property.
Generally for unsecured debt; does not protect from foreclosure or repossession. The length and cost of the repayment plan is challenging for many filers.
Which form of bankruptcy is best for you depends on your financial situation and goals. To determine whether Chapter 7 or Chapter 13 bankruptcy is best for you, consult with a bankruptcy attorney. Most consumers opt for Chapter 7 bankruptcy, which is faster and cheaper than Chapter The vast majority of filers qualify for Chapter 7 after taking the means test , which analyzes income, expenses and family size to determine eligibility.
Chapter 7 bankruptcy discharges, or erases, eligible debts such as credit card bills, medical debt and personal loans. In some instances, a bankruptcy trustee — an administrator who works with the bankruptcy courts to represent the debtor's estate — may sell nonexempt items, meaning belongings that are not protected during bankruptcy. Nonexempt items vary according to state law.
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