Chapter 7 and Chapter 11 Bankruptcies for Individuals

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30 April 2019
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Bankruptcy
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Chapter 7 and Chapter 11 Bankruptcies for Individuals

When you are considering filing for bankruptcy, it can be intimidating to learn that there are so many different types of bankruptcy. Which one is right for you? In this post, we’ll break down the differences between Chapter 7 and Chapter 11 bankruptcies for individuals so you can make the right choice for your financial situation.

Chapter 11 Bankruptcy

Chances are that you’ve heard of big businesses filing for Chapter 11 bankruptcy. However, individuals are allowed to file for Chapter 11 as well.

Chapter 11 is similar to Chapter 13 in the sense that it is a “restructuring” type of bankruptcy, rather than a “liquidation” type of bankruptcy. This means two things.

  1. The first is that the debtor gets to keep his or her property as long as payments continue to be made.
  2. The second is that debt isn’t erased right away. Instead, the debtor renegotiates a payment plan with his or her creditors and agrees to make payments for a number of years. At the end of the term, any remaining debt is discharged.

There are a couple situations where a Chapter 11 bankruptcy might be the right choice for you. They include:

You Have a Lot of Debt

And we really mean a lot. Chapter 11 is generally the right choice for people who have over $1.1 million in secured debt (like a mortgage) and $395,000 in unsecured debt (like credit card debt). People with this amount of debt are forced into Chapter 11 because they no longer qualify for a Chapter 13 bankruptcy.

You Have a Lot of Cash for Legal Fees

Chapter 11 bankruptcy costs a lot just to file the paperwork—nearly $2,000. After you file, you can expect to spend thousands more in legal fees, as Chapter 11 cases tend to be lengthy and complex.

You Own a Business

If you operate a business as any other entity than a sole proprietorship, you will probably have to file Chapter 11 (assuming you want to keep your business open).

Chapter 7 Bankruptcy

On the other hand, Chapter 7 bankruptcy is the type of bankruptcy most think of when they think of individual bankruptcies. Chapter 7 cases are considered “liquidation” bankruptcies, because the debtor’s assets are liquidated (sold) in order to partially repay his or her debts. Any remaining debt (with a few exceptions) is then wiped out.

When is Chapter 7 the right choice for you? Here are a few example scenarios.

You Can’t Afford to Pay Your Debts

If you are struggling to pay your living expenses, Chapter 7 is probably the right choice for you. Chapter 7 bankruptcies generally get rid of most, if not all, of a person’s unsecured debts (such as credit cards or medical debt).

You Want a Fresh Start, Fast

Chapter 7 bankruptcy is a relatively quick way to get out of debt and start rebuilding your financial future. Whereas a Chapter 11 bankruptcy can take years to complete, a Chapter 7 bankruptcy is often wrapped up in a matter of months. If you are ready to get out of debt and move on with your life, Chapter 7 may be for you.

You Need an Affordable Solution

If you’re having a hard time making ends meet, you probably don’t have a lot to spend on filing and legal fees. Chapter 7 bankruptcy is inexpensive to file and the associated legal fees are the lowest costs of any type of bankruptcy.

Work with an Experienced Missouri Bankruptcy Lawyer

At the law offices of Michael J. Benson, we have extensive experience working with all types of bankruptcy and can help you decide which type is right for you. As a certified bankruptcy attorney and licensed CPA, Michael can help you get back on your feet, financially. Are you ready to start working toward a debt-free future? Contact our offices today to schedule your free initial consultation.

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