Considering bankruptcy, but not sure what the differences are between all the different forms? Here is the essential information that you need to know so that you can make the most informed decision possible.
When you use Chapter 7 bankruptcy, you are essentially liquidating the items that you own in order to pay for your debts. This is often used by people that have low income and do not have any property or expensive assets that they can lose. One of the big benefits of using Chapter 7 bankruptcy is that it wipes out all of your unsecured debts. For most people, this means getting a fresh start with your medical and credit card bills. If you are a good candidate for this form of bankruptcy, know that it is going to be the fastest and least expensive form of bankruptcy to go through.
What makes Chapter 13 different from Chapter 7 is because you can pay back many of your debts over time. Many people refer to it as a debt reorganization, because many debts are put into a repayment plan that you pay over 60 months. Means testing is required to see how much disposable income you have after paying normal monthly expenses, with the extra money going towards a repayment plan.
Individuals often use Chapter 13 because they want to stop the foreclosure of their home. They can take payments on debt that they missed, make them up over the 60 months, and keep making those regular monthly payments in addition. Many unsecured debts are put into the repayment plan, but only a small percentage of that debt. The credit is better off getting something under Chapter 13 rather than nothing under Chapter 7, and your credit is impacted less as a result.
Chapter 11 is a form of bankruptcy used by companies and individuals. It is similar to Chapter 13 bankruptcy but has a much higher debt limit. This is why it is best suited for corporations, but can also be used for individuals with very circumstances where Chapter 13 would still leave them with debts that they have to pay.
Why not just use Chapter 11 to take advantage of its higher debt limit from the start? This form of bankruptcy is going to be more expensive to go through and should be avoided if you qualify for Chapter 13.
Reach out to a bankruptcy attorney to help determine the right kind of bankruptcy for you.