What Is the Difference Between Chapter 7 and Chapter 11?

Filing bankruptcy can be a confusing and daunting process, and being aware of the different ways that you can file are important. Once you have decided that filing for bankruptcy may help your financial situation, it is best to seek a consultation with a bankruptcy attorney, and they can help you decide which bankruptcy chapter you should file under.

Chapter 7

Sometimes called the “liquidation” bankruptcy, this method is for those who are not capable of meeting the obligations of reorganization and in turn must sell off un-exempt assets to pay creditors. Under “absolute priority,” creditors collect on the incurred debt depending on how the money was loaned. Secured debts are paid first. Once the secured debts are satisfied, the remaining assets and cash are distributed among the unsecured creditors. A trustee is appointed to make sure that the assets are sold and divided among the creditors.

Chapter 11

Chapter 11 is designed to allow the filer to reorganize their financial situation. Filing under this chapter does not absolve the debt; it makes it possible to arrange payments with creditors, which if payment plans are followed, will eventually settle the debt. For instance, if you divorced and retained assets that you are unable to pay for because now you are relying on one income instead of two during a reorganization bankruptcy your creditor may agree to lower payments over a longer term. When filing a Chapter 11 bankruptcy, a trustee is also appointed to oversee the process.

Filing bankruptcy can allow you to regain control of your financial obligations. If necessary, both chapters can help alleviate a dire situation by allowing you to sell off assets to satisfy creditors. While it is possible to handle your bankruptcy yourself, it is advisable that you hire a bankruptcy attorney. A bankruptcy attorney has the experience and knowledge that is necessary to navigate the bankruptcy court system, and they are aware of exactly what paperwork and procedures need to be followed to bring the case to as satisfactory conclusion as possible. When you meet with your attorney, bring as much available information concerning your finances as possible so that they can best advice you as to a course of action. Do not wait too long because it may get to the point where it is difficult to resolve your problems. Whether you file under Chapter 7 or Chapter 11 the benefits can help you gain control of your finances and relieve the stress of dealing with debt collectors.