Before deciding to claim bankruptcy, it’s important that you consider alternatives and the consequences that bankruptcy can have on you and your credit rating. Sometimes it truly is the best or only option, but make sure that you have definitively looked at all other options before moving forward with claiming bankruptcy. There are good evaluations online that can let you know where you stand with bankruptcy. Once you decide that you are going to claim bankruptcy, the next step is deciding among Chapter 7, Chapter 11 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 is the most severe form of bankruptcy and is available for both individual and business & corporation. This type of bankruptcy basically wipes the slate clean with debts so that you don’t have to repay them. For businesses, filing for Chapter 7 means that the company has to cease all operations by either being closed or sold to another investor.

One of the major downsides to Chapter 7 is the liquidation of personal property and valuables. This can even include a family home. It also stays on your credit record for ten years, more than other forms of bankruptcy. It is tougher to apply for in the sense that all of your financial records are intensely scrutinized to ensure that you are truly broke with no other options.

The process for filing for Chapter 7 bankruptcy is as follows –

  1. Make a statement of financial affairs. This includes making a list of all of your property and values including income, payment frequency and amount, creditors and the amount owed to each.
  2. Go to your nearest federal court to file all required bankruptcy forms.
  3. An automatic stay is issued on your account, meaning that creditors can no longer call you for payment.
  4. You must attend a 341 meeting once the court notifies you (usually takes about a month). This is where, if you meet the requirements, you will be discharged by creditors once they are convinced that you actually can’t pay them and are not just trying to avoid them.
  5. A trustee is appointed to you and will manage the entire liquidation process of all of your assets.
  6. The court will grant a discharge (usually occurs 2-3 months later)
  7. Creditors can take absolutely no further action against you and all personal liability for debt is lifted

There are certain debts that cannot be expunged through Chapter 7 such as mortgages, vehicles, and child support and student loans.

Chapter 11 Bankruptcy

Chapter 11 is less severe than Chapter 7 and exists for individuals, businesses, corporations and partnerships. Nevertheless, individuals almost never use Chapter 11. The main differences between Chapter 11 and Chapter 7 is that Chapter 11 restructures existing debts to be paid back over time. Also, businesses are allowed to remain in control of their assets as opposed to having to give that up like Chapter 7.

Chapter 11 begins with a plan being drafted up. The debtor(s) can propose a plan, and the creditors can propose a plan as well after a certain time. In order for a plan to be put into place, it has to be approved by the creditors. Just like with Chapter 7 bankruptcy, a trustee is appointed to each case to ensure that it all runs smoothly.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy also works like Chapter 11 in that it involves a repayment plan. The difference is that Chapter 13 is just for individuals, whereas Chapter 11 is primarily for businesses, corporations or partnerships. Also, the timeline is different in that Chapter 13 must be repaid between 3 and 5 years while Chapter 11 has no time limit. Only people with a regular income are eligible for Chapter 13.

The process for filing for Chapter 13 bankruptcy is as follows -

  1. Before filing for bankruptcy, you must undergo credit counseling from an approved credit counselor and get a certification that says so
  2. Go to your nearest federal court to file all required bankruptcy forms.
  3. An automatic stay is issued on your account, meaning that creditors can no longer call you for payment.
  4. Your federal tax returns must be given to your trustee and all creditors
  5. You must attend a 341 meeting once the court notifies you (usually takes about a month). This is where your trustee examines the repayment plan and makes sure that you will actually be able to make said payments
  6. The trustee will let you know whether or not the repayment plan is approved at a confirmation hearing
  7. All monthly income details from the past 60 days before bankruptcy must be filed with the court
  8. Once the plan is paid, all outstanding debt can be eliminated with a discharge hearing

No matter whether you decide to file under Chapter 7, 11 or 13, it’s important to hire a bankruptcy attorney to make sure you are following all of the steps that you need to follow.

Sources

http://howtoclaimbankruptcy.net/chapter-7-bankruptcy-laws.php

http://howtoclaimbankruptcy.net/chapter-13-bankruptcy-rules.php

http://claimingbankruptcy.net/how-to-claim-bankruptcy/

http://www.ehow.com/about_7231026_chapter-11-vs_-chapter-13.html