Chapter 7, Chapter 13, Chapter 11, and Chapter 12 — did you know there were that many types of bankruptcy? The bankruptcy process is different depending on which bankruptcy chapter you file. This is one of the reasons working with an experienced bankruptcy attorney like the Law Office of W. Thomas Bible, Jr. is so important.
We help clients with all aspects of these four type of bankruptcies and have answers to the many questions surrounding which type of bankruptcy you should file, how long it will take, and how each process works. Here are some of the basics you should know.
Chapter 7
The results of excessive debt are not fun for anyone with constant credit card bills, medical debt, constant calls from creditors. Many people who file for Chapter 7 are drowning in credit card debt, payday loans, medical debt and other types of unsecured debt. In a Chapter 7 bankruptcy, the bankruptcy takes control of the debtor’s assets (if there are any) and uses them to pay off creditors. It will completely wipe out unsecured debt and stops all debt collection activities, offering people struggling with debt the chance for a clean financial slate.
Chapter 7 bankruptcy is also called “debt liquidation” because the bankruptcy trustee uses the debtor’s assets to pay off creditors. This is somewhat misleading though because many who file for Chapter 7 bankruptcy have no qualifying assets to seize. They stand to lose nothing. Most people who file for Chapter 7 bankruptcy have their debt discharged within six months.
Not everyone can qualify for Chapter 7 bankruptcy, and in order to file you must pass a means test. The means test is a feature of the 2005 changes to the Bankruptcy Code, implemented to prevent people with the ability to pay their debts from getting those debts discharged. For those who do not qualify for Chapter 7, Chapter 13 bankruptcy is an alternative.
Chapter 13
If you are behind on your mortgage loan, car loan, or other secured loan, Chapter 13 bankruptcy offers the opportunity to get your debt under control while keeping your property.
Filing for Chapter 13 bankruptcy is the first step in establishing a payment plan that lasts between three and five years. We will work with you to propose a payment plan to the bankruptcy court. You will pay back all or a portion of your debt to your creditors, through the bankruptcy trustee. In a Chapter 13 bankruptcy, the debt discharge does not occur until the payment plan is completed.
Chapter 13 is also known as the “wage earner’s plan” because it allows people who earn a steady income so they can pay their debts. Like Chapter 7 bankruptcy, Chapter 13 also immediately stops creditor actions like home foreclosure and vehicle repossession.
Another feature of Chapter 13 is its ability to strip second mortgages. This means that if you are upside down on your first mortgage (you owe more than the house is worth), Chapter 13 will completely eliminate any second mortgages on the home. This is only possible if you have no equity in the home, and it is your place of residence.
Chapter 11
Chapter 11 bankruptcy is a reorganization plan, primarily for businesses, including corporations and partnerships. As opposed to a Chapter 7, which marks the end of the business, a Chapter 11 bankruptcy allows the business to continue running, while reorganizing the business in a way that is hopefully more profitable.
Businesses are protected from debt collection activities, while having time to reorganize debt and restore the business. Some debt can be discharged in a Chapter 11, depending on the circumstances. The bankruptcy court must approve the debt reorganization plan. The business continues operations, and the debtor becomes what is known as a “debtor in possession,” meaning that he or she retains control over the business and its assets.
The debtor in possession has important rights and obligations in a Chapter 11 bankruptcy. They become the trustee of the bankruptcy estate, and are obligated to run the business in the best interests of the creditors. The debtor in possession can make decisions unilaterally as long as those decisions are in the normal course of business. If a decision does not fall in the normal course of business, the debtor in possession must obtain permission from the bankruptcy court.
Thorough planning is a key element to a successful Chapter 11 bankruptcy. Our attorneys can work with you early in the process to help you position yourself to gain maximum advantage from filing for Chapter 11.
Chapter 12
The Chapter 12 bankruptcy process is very similar to the Chapter 13 process, except it is designed specifically to aid a family farmer or fisherman who is burdened by debt.
After filing for Chapter 12 bankruptcy, the debtor must provide the trustee with a complete list of his or her liabilities and assets within 15 days. Within 90 days, the debtor must file a repayment plan, detailing how creditors will be repaid. The debtor must also attend a meeting with the trustee and creditors.
In order to be eligible for Chapter 12 bankruptcy, at least half of the farmer’s or fisherman’s gross income must have been from farming/fishing the previous year. At least 80 percent of the debt must be farming/fishing-related. The farmer or fisherman must also earn enough income to be able to make debt payments over a three-to-five year period.
If you are struggling with excessive debt and looking for a sound solution, the attorneys at Tom Bible Law, can help you explore your legal options. We have helped numerous clients from Chattanooga and throughout Tennessee and North Georgia achieve their debt relief goals by guiding them through the bankruptcy process. We work with every client personally, giving each and every bankruptcy case the time and attention it needs. We understand the financial pressures our clients are facing and work to resolve their debt problems in a favorable, cost-effective manner. Our bankruptcy lawyers have more than 50 years combined experience and are here to help. Call us today at (423) 690-7712 or drop us a note here.