How To Choose Between Restructuring And Liquidation In Bankruptcy

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Tax Burden Bargaining: Understanding The Law

When you find yourself facing a significant tax burden, it can be tough to know where to start to pay it down. Unfortunately, the government may not wait for you to sort it out. If you find yourself served with a legal notice for repayment, you need to talk with an attorney right away. A tax law attorney can help you evaluate the situation and potentially file for a reconsideration. If nothing else, he or she will talk with you about your legal options for repayment and what the government can and cannot do. This site will help you see what my experience has been so you can understand some of the options you may want to consider.


How To Choose Between Restructuring And Liquidation In Bankruptcy

11 February 2021
 Categories: Law, Blog

When a client meets with a bankruptcy attorney to discuss their potential options, the choices fall into one of two broad groups. The one end covers what's called restructuring, a process where a person or business pays a percentage of what they owe. At the other end, there is liquidation, where the court orders the sale of the petitioner's disposable assets.

Each approach has its strengths and weaknesses. Here is how a bankruptcy lawyer helps a client pick the approach that's right for them.

Secured vs. Unsecured Debts

The assets attached to secured debts must be returned to the creditors. A secured debt is something where the creditor can foreclose on or repossess the item, such as a car that's part of a vehicle loan or a house covered by a mortgage. If you're trying to keep a mortgaged house, for example, the only viable approach to do that is through restructuring under Chapter 13.

Unsecured debts are things backed by only your faith and credit. A credit card or utility bill would be an unsecured debt. If you have a pile of unsecured debts and no secured ones, such as might be the case with a renter who owns their car outright, liquidation may be the better option because there's nothing to repossess.


Notably, you might not be eligible for one or either type of bankruptcy. For example, someone who makes too much income may be able to file to restructure under Chapter 13, but they might not be able to liquidate under Chapter 7.

Similarly, someone who makes too little money might not be able to restructure because the court may decide they could never afford to complete the plan. Consequently, that person might be told to go straight to Chapter 7.

A Possible Mixed Solution

It's not a simple thing to do, but it may be possible to liquidate assets to pay some debts and restructure others. A bankruptcy attorney will have to work with the court to pursue what is sometimes called a "Chapter 20" case, based on the very lawyerly joke that 7 plus 13 adds up to 20. The idea here is to discharge unsecured debts through Chapter 7 and then restructure secured ones under Chapter 13.

Bear in mind you will need enough income to be able to afford payments under the proposed plan. However, discharging the Chapter 7 debts may put you in a position to afford a Chapter 13 plan. For more information, contact a company like Martinez Law Firm