Choosing the Right Bankruptcy: Chapter 7, Chapter 11, or Chapter 13?

When we get a new client asking for bankruptcy relief, most of them aren’t sure what chapter they should be filing under. Bankruptcy law can be very complex, and what chapter you file under will greatly impact your obligations going forward. In this article we will provide a consolidated rundown of what each chapter means and who should file under that chapter. This information should help guide you on how you should move forward with your case. However, as always if you are considering filing you should first speak to a qualified attorney to help walk you through the process.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is by far the most common filing, accounting for a little over 71% of all filings in the US. This form of bankruptcy tends to be favored because it will discharge most debts and not tie you into further obligations for your creditors. Furthermore, protections under state law means that, although much of your property will have to be sold, certain items will be exempt, giving you the foundation you need to start again.

A chapter 7 filing is best for those who are under a heavy debt burden but have low income. “Low income” is determined by comparing your income to the household average of the area. If you fall below the median income level for your household then you may qualify. If you happen to earn more than that then a Chapter 13 Bankruptcy may be the best filing for you.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is primarily aimed at business owners. While commonly associated with corporations, it can also be filed by small businesses. The Chapter 11 bankruptcy is very attractive to business owners because it does not force you to liquidate all of your business assets. The goal of this form of bankruptcy is to reorganize your business and start turning a profit again. This is done by reducing the debt your business owes into manageable monthly payments.

If your business is struggling due to economic conditions and you simply need temporary relief until you can start turning a profit again, a Chapter 11 filing may be the best fit for you.

Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy is often the next option for those who do not qualify under Chapter 7. With a Chapter 13 filing, you are required to start making monthly payments over a period of three to five years, and if you can make those payments in good faith any remaining debt is discharged. It can also be attractive because, unlike Chapter 7, a Chapter 13 bankruptcy does not demand the liquidation of assets.

If you have a steady income, and are simply falling behind on monthly payments and existing debts, then this form of bankruptcy may be best for you. By consolidating all of your debts into a single payment plan that takes your income into account, you can get ahead of the debt and get your head above water.

Choosing the Right Chapter

Hopefully, this guide will help you with determining the right chapter to file under. However, if you are considering filing we strongly recommend you talk to a qualified attorney like Jon L. Martin. Everything here is a general guideline, but every case is unique and a skilled attorney can walk you through the specifics of your case and pick the option that is best for you.


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