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Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common chapter to file under as it usually results in the discharge of most or all debts with cases lasting between 4 to 6 months while retaining all of your property through the use of exemptions.
Chapter 7 bankruptcy is also sometime referred to as “liquidation bankruptcy” since, unlike Chapter 13, it does come with the risk of losing property. Through careful and creative use of exemptions and pre-bankruptcy planning, this risk can be mitigated.
Corporate bankruptcy
When a business formed as a corporation or LLC, the business itself can file bankruptcy under Chapters 7 or 11.
Corporate Chapter 7: This will require that the business cease operations and a trustee be appointed to determine whether any assets will be liquidated for the benefit of creditors.
Corporate Chapter 11: This will allow the business to restructure its debts and continue operating. As of 2020, there is a simplified form of Chapter 11 referred to as “Sub-chapter V” which is available for small businesses.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also referred to as “reorganization” since it allows for debts to be paid back on different terms that would be possible outside of bankruptcy. Common uses for a Chapter 13 bankruptcy are to get caught up on mortgage or vehicle payments and paying non-dischargeable debts such as taxes.
Contrary to popular belief, Chapter 13 does not require that you pay back all debts, only a portion which is dictated by several different factors. Payments to unsecured creditors can be as little as $0 and any debts that are not paid off during the plan are discharged in their entirety.