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Bankruptcy Chapters Explained – Part 1

Bankruptcy isn’t something anyone wants to go through

However, it can be a stepping stone to a future of financial success when handled properly.

Bankruptcy is a complex process. Bankruptcies are handled by a federal court known as the bankruptcy court, and filed under a particular chapter of the bankruptcy code. The most common types of filing for individuals and business are Chapter 7, Chapter 11, and Chapter 13. Chapter 9 (for municipalities) and Chapter 12 (for family farmers) are also available, but, for obvious reasons, they are much less common than Chapters 7, 11 and 13. Let’s take a look at the differences between and advantages and disadvantages of the most common types of filings.

Petition for Bankruptcy

Chapter 7

A Chapter 7 filing, commonly known as a straight bankruptcy, is an option for individuals. Under Chapter 7, you can discharge unsecured debts by surrendering assets. An unsecured debt is a debt without collateral, like a personal loan or credit card. The main advantage of Chapter 7 is that the debtor emerges without any continuing obligation to the debts eliminated during the bankruptcy. However, there are limitations on the types of debts Chapter 7 can discharge. Generally speaking, you cannot discharge tax debts, student loan debts, or child and spousal support debts under Chapter 7. Furthermore, in order to discharge secured debts like mortgages and car loans, the debtor will likely have to surrender their home or car. There are, however, exceptions to some of these rules, and only a qualified attorney will be able to tell you if a Chapter 7 filing is the right option for you.

Chapter 11

Chapter 11 generally applies to businesses. However, a highly specialized bankruptcy lawyer can use Chapter 11 for individuals with high incomes, high debt, or a need to rewrite long-term obligations that cannot be rewritten under any other chapter.

Check back soon for Bankruptcy Chapters Explained — Part 2

We are a debt relief agency and have practiced bankruptcy law for a combined 50 years. Our services include helping individuals and couples file for bankruptcy relief under the Bankruptcy Code. 

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