Bankruptcy for Individuals and Businesses
Consumer Bankruptcy
Consumers have the option to choose which type of bankruptcy to pursue. These options are found in separate chapters of the Bankruptcy Code. Consumers most commonly file under Chapter 7 or 13, and very few file under Chapter 11.
Consumer: Chapter 7
Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," is the most common type chosen by consumers. Once the debtor file’s a petition with the court, all debt collection activity stops and a court appoints a trustee to oversee the liquidation of the debtor’s assets. Once assets have been liquidated, the trustee will collect the proceeds and pay the creditors. Any unresolved debt is then discharged.
Consumer: Chapter 13
If a debtor has regularly incoming wages and believes the financial strain is only temporary, they may file for Chapter 13. Similar to Chapter 7, all debt collection is stopped once a petition is filed. However, instead of liquidating assets, the individual seeks approval of a payment plan from the court and uses the incoming wages to make payments. Any unresolved debt is then discharged. The debtor must have less than $360,475 in unsecured debt and $1,081,400 in secured debt to be eligible for Chapter 13.
Commercial Bankruptcy
Businesses must choose alternative types of bankruptcies, each of which correspond to a different chapter of the federal Bankruptcy Code. Businesses usually choose either Chapter 7 or 11, and occasionally Chapter 13. Sometimes businesses can even be involuntarily drawn into bankruptcy by their creditors, who face stiff financial penalties if they initiate an involuntary bankruptcy for invalid reasons.
Commercial: Chapter 7
The process for commercial Chapter 7 bankruptcy is very similar to the consumer’s process. Assets are still liquidated and overseen by a court-appointed trustee. However, outstanding debt at the end of payment is not discharged and the business typically closes.
Commercial: Chapter 11
In Chapter 11 bankruptcies, which are usually filed by businesses and rarely by individuals, the commercial debtor is usually allowed to stay in business throughout the bankruptcy proceedings. A business debtor may only operate independently in its ordinary course; transactions outside the ordinary course of business require court approval.
Andrew C. Marine does not provide Chapter 11 bankruptcy assistance, but can happily refer you to a trusted and experience colleague who can.