Bankruptcy Basics – Chapter 7? Chapter 13?

Individuals faced with specific dilemmas brought by creditors–whether it be a pending foreclosure sale, a wage garnishment or a levy upon a bank account–are often nevertheless apprehensive to file a bankruptcy petition to stop such creditor actions.  However, individuals faced with such dilemmas are often well-advised to file a chapter 13, rather than the more traditional chapter 7 liquidation.

A chapter 13 comes with it many of the benefits of a chapter 7, such as a freeze of most pending actions taken by a creditor against the debtor-filer; a freeze of a foreclosure sale, the release of funds levied and held by a creditor; and the cessation of any garnishment order.  One significant benefit in filing under chapter 13 of the bankruptcy code rather than under chapter 7 is the absolute right to withdraw a chapter 13.  In a chapter 7 case, a debtor must request permission from the Court, and depending on the circumstances of the case, such request may not be granted.  A chapter 13 debtor, however, has an absolute right to withdraw for whatever reason at any time.

A well-qualified attorney is highly recommended for chapter 13 filers due to the added complexity of this type of case.  For individuals seeking bankruptcy protection through a reorganization and who have more than (approximately) $1.2 million of secured or approximately $400,000 of unsecured debt (whether past due or not), a bankruptcy under chapter 11 of the Bankruptcy Code, rather than chapter 13 may be required.  Chapter 11 is often associated with companies who are able to operate after a restructuring, but individuals may also file under chapter 11. Chapter 11s come with more complexity, more cost and significantly more flexibility (but without the same right to withdraw).