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Chapter 7, 11 and 13 Bankruptcy Demystified

30th June 2010
By Christopher in Bankruptcy Law
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The worldwide recession has left few people untouched. Bankruptcy is on the minds of many people. Those who have lost jobs or who have been devastated by failed investments may benefit from the fresh start that bankruptcy can offer. What benefit is bankruptcy for the individual who has relatively high income, but who is under a crushing burden of debt and also under daily assault from creditors?

Discussions of bankruptcy inevitably turn to an explanation of the various "chapters" of the bankruptcy code and their uses. The Bankruptcy Code is organized into Chapters and is found in Title 11 of the U.S. Code. The most commonly used Chapters of the code are Chapter 7, 11 and 13.

Chapter 7 is the most used of the bankruptcy chapters. It is referred to as "liquidation" and is generally available to all debtors subject to certain income guidelines. Generally, the debtor in a Chapter 7 bankruptcy is able to retain most of their real and personal property through "exemptions" provided in the bankruptcy code. Any property subject to liens will be either returned to the creditor or will be kept by the debtor. If a debtor decides to keep property subject to a lien, they must continue to make monthly payments until the lien is satisfied. Chapter 7 cases are usually completed in a few months and allow the debtors to quickly begin the process of rebuilding their credit.

People who have regular income that is too high to permit them to file a Chapter 7 may have to file a Chapter 13. Chapter 13 bankruptcies are referred to as "wage earner cases" and provide protection from creditors and reorganization of debts through a plan confirmed by the court. The Chapter 13 reorganization plans are generally 3-5 years in length. Payments are made monthly to the trustee who distributes the payments to creditors. While a Chapter 7 provides a complete discharge of debts, a Chapter 13 provides for a partial repayment to the creditors. Chapter 13 also has useful tools not available in a chapter 7. These include the ability of the court to reduce the principal balance and interest rates on certain car loans, and the removal of a second lien on a home that is severely "upside down."

Businesses that need protection from their creditors while maintaining their operations usually file for a Chapter 11 bankruptcy, which is also sometimes used by individuals ineligible to file a Chapter 7 or Chapter 13. Similar to Chapter 13, Chapter 11 is reorganization and requires a confirmed plan and regular monthly payments.

There are both pros and cons to each of the bankruptcy chapters, and to filing bankruptcy generally. While credit damage may result, very often filing bankruptcy marks the beginning of rebuilding an individual's credit. At Combs Law Group we can advise you of the specific ramifications of bankruptcy and we will represent you if bankruptcy is the best option. If you have questions regarding Bankruptcy or foreclosure, we recommend that you contact Combs Law Group to schedule an initial consultation.

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