Like a good book, there are many chapters in bankruptcy. In fact, there are five chapters relevant to individuals and businesses: Chapter 7, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. For individuals and businesses, Chapters 7, 11, and 13 are the most common and relevant bankruptcies. Chapter 12 bankruptcy is specific to family farmers and fishermen – allowing them to reorganize their debts in a repayment plan to allow the business to continue to operate. Chapter 15 bankruptcy is more of a supplementary bankruptcy in that it allows debtors, creditors, and other interested parties to assert their rights in foreign insolvency cases. To provide some clarity, the three most common bankruptcy chapters are described below:
The most common bankruptcy in the US is Chapter 7. This is known as liquidation bankruptcy because assets are sold off to satisfy existing debts. Chapter 7 bankruptcies are available to both individuals and businesses, although the rules differ between them. For individuals, certain assets are considered “exempt property” which means they are protected from creditors and not subject to sale. This exempt property may include real estate, personal property, retirement accounts, and certain public benefit payments (unemployment, workers compensation, veteran’s benefits, etc.). At the end of the process, the court will discharge the remaining debts. However, some types of debts, such as alimony, child support, and most student loans generally aren’t dischargeable.
Unlike Chapter 7 bankruptcy which is a liquidation of assets to satisfy creditor claims, Chapter 11 bankruptcy is a reorganization bankruptcy. It involves submitting a reorganization plan to restructure debts to help repay creditors over time. Businesses filing Chapter 11 bankruptcy will continue to operate in most cases. Chapter 11 bankruptcy is designed to allow individuals and businesses to continue on while restructuring their debts in a manner that allows repayment. This restructuring often involves amending existing debt terms such as interest rates and principal repayment schedules and may include the write-down of some of the outstanding debt in an effort to allow recovery of the remaining balances.
Chapter 13 is the second most common type of bankruptcy and is used primarily by individuals. Like Chapter 11, a Chapter 13 bankruptcy is a reorganization bankruptcy allowing individuals to restructure their debts by creating a repayment plan to make installments to creditors over three to five years. Chapter 13 bankruptcy is only available to qualifying individuals and is commonly known as wage-earners bankruptcy. To be a qualifying individual for Chapter 13, the individual must earn a regular wage and meet certain debt limitations for unsecured and secured debt. One of the most significant advantages that Chapter 13 bankruptcy offers to individuals is an opportunity to save their homes from foreclosure.
Bankruptcy Lawyers Serving Augusta, Georgia
The decision to file bankruptcy is not one that should be taken lightly. Similarly, bankruptcy is not the end of the road for creditors. The bankruptcy code is designed to allow individuals and businesses who are overburdened with debt work with their creditors to ensure a satisfactory outcome to both parties.
At Klosinski Overstreet, LLP, our attorneys have extensive experience representing both creditors and debtors, and we work tirelessly to ensure that your interests are protected. We are experienced business and litigation lawyers with a strong accounting skill set. If you are facing debt issues and considering bankruptcy, or are a creditor to an individual or business filing bankruptcy, please contact our office today to schedule a consultation.