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Differences Between Chapter 7, 11, 12, & 13 – Bankruptcy

A row of blue folders with a label sticking out of the middle that says "Bankrupt."

Understanding the differences between the various types of bankruptcy is likely the last thing on your mind when you’re going through financial hardship. However, understanding these differences can also help you fully understand your options moving forward.

Our bankruptcy lawyers in Rockford, IL are available to guide you in the right direction and provide the legal help you need. Continue reading to learn about the different types of bankruptcy.

Bankruptcy Chapter 7 – Illinois

Chapter 7 bankruptcy is also referred to as “liquidation” or “straight bankruptcy.” This is used for individuals, small businesses, and other entities that have accumulated debts they cannot pay. When filing under Chapter 7, a debtor’s assets are sold so creditors can receive payment.

Chapter 7 bankruptcy allows debtors to eliminate most of their debts in a straightforward manner. When you contact the bankruptcy attorneys at The Crosby Law Firm, we can help you determine if you qualify for Chapter 7.

Chapter 11 – Bankruptcy Illinois

Also referred to as “reorganization” bankruptcy, Chapter 11 is primarily used to help reorganize businesses with accumulated debt. It’s typically used by corporations, although small businesses can file under Chapter 11, as well. In rare situations, consumers may file under Chapter 11.

This type of bankruptcy allows debtors to develop a plan geared towards building profitability. This may include trimming costs or finding new sources of income while creditors wait on collecting debts.

Pros of Chapter 11 include having the opportunity to reassess a business’ earning strategies in order to pay off debts, rather than liquidating all of their assets. This allows the debtor to become a financially independent and successful organization.

One con of Chapter 11 is that you’ll spend a lengthy time in bankruptcy court. Another disadvantage can be that the financial plan put forth to regain financial stability must be approved by both the creditors and the court. Going forward, all major company decisions must also be approved by the bankruptcy court.

Chapter 12 – Bankruptcy Illinois

Chapter 12 bankruptcy is designed for “family farmers” and “family fisherman” to restructure their finances in order to avoid liquidation or foreclosure. Chapter 12 dictates that the debtor must propose a 3-5 year repayment plan which will allow them to pay off most or all of their debts.

With the help of our bankruptcy lawyers at The Crosby Law Firm, we can help you navigate the limited applications of filing under Chapter 12.

Chapter 13 – Bankruptcy Illinois

Unlike other types of bankruptcy, Chapter 13 bankruptcy focuses on the individual rather than businesses and corporations. It is also referred to as “wage earner’s” bankruptcy. Through the reorganization of payment obligations, the debtor agrees to pay a portion of their debts over a reasonable period of time. This is done through a court-approved payment plan funded by the debtor’s disposable income.

If a debtor can pay the debts in full, they are obligated to do so under Chapter 13. However, when this is not the case, payments are set to be made over a 3-5 year period to a Chapter 13 trustee. The trustee will distribute the money to creditors who have filed the proper claims.

Once the repayment plan has been completed, any remaining debt that is eligible to be discharged will be after you file for Chapter 13.

What are the Differences Between Chapter 7, 11, and 13?

You may be asking, What is the difference between bankruptcy 7, 11, and 13? These forms of bankruptcy are far more common than Chapter 12. They maintain several chief differences, such as the following:

  • Who the bankruptcy chapter is designed to support (i.e. businesses and corporations VS the individual)
  • Whether or not the bankruptcy chapter dictates there must be a debt repayment plan
  • How debts are paid according to the bankruptcy chapter
  • Whether assets will be liquidated or not in order to fund debt repayment
  • How the bankruptcy process affects your credit score

Chapter 7 is one of the most common avenues in which people file for bankruptcy. However, depending on the situation, debtors may find they will benefit more from filing under Chapter 11 or 13.

Some of the differences between Chapter 7 and 11 bankruptcy include:

  • Chapter 7 involves liquidating assets, such as property, to pay debts. Chapter 11 focuses on allowing companies to restructure and reorganize themselves to remain in business while paying debts over time.
  • Chapter 11 is more costly and debtors spend more time in court.
  • Chapter 7 is geared more towards individuals and small business owners. Chapter 11 is geared towards large companies.

Some of the differences between Chapter 7 and 13 bankruptcy include:

  • Chapter 7 is designed to eliminate debt by liquidating assets. Chapter 13 focuses on restructuring debt to be fully or partially paid off over time via disposable income.
  • Chapter 13 is designed for individuals who earn a substantial income and are expected to be able to repay their debts over time. Chapter 7 is geared towards individuals who are financially unable to pay their debts now or in the future.
  • Under Chapter 13, debtors have up to 5 years to pay their debts. Chapter 7 does not require a repayment plan.

Bankruptcy laws are federally uniform throughout the U.S., which means they don’t vary from state to state. However, determining which chapter to file under can be difficult. It’s important to consult a qualified attorney when considering bankruptcy.

Contact The Crosby Law Firm Today

Bankruptcy is a complicated topic. There are many legal intricacies to the different bankruptcy laws and how to eliminate various types of debt. At The Crosby Law Firm, our experienced bankruptcy attorneys can help you navigate the turbulent waters surrounding your case.

We understand filing for bankruptcy is stressful. This is why we offer free consultations, flat fees, and payment plan options to help you get back on your feet. Contact The Crosby Law Firm today to get the help you need when filing for bankruptcy in Illinois.

Call us now to get the legal advice you need.(815) 397-2006

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