A debtor faced with a foreclosure, lawsuit or wage/asset levy may, despite these troubles, still be apprehensive about filing for bankruptcy. Potential bankruptcy filers may be advised to file a chapter 13 bankruptcy, rather than the more straightforward petition under chapter 7 of the Bankruptcy Code. Any bankruptcy filing, however, is a complicated and stressful undertaking and should be evaluated with care by an experienced practitioner.
At its core, bankruptcy is a proceeding that offers a debtor a fresh start. Bankruptcy provides benefits for both debtors (who owe debts) and creditors (who are owed debts), and is intended as an efficient means to resolve a debtor’s insolvency in a consolidated forum. Bankruptcy cases use both federal and state law, but the U.S. Constitution expressly provides for bankruptcy and Congress as enacted a number of laws codified in what is known as the Bankruptcy Code. The Bankruptcy Code is supplemented by both Federal Rules of Bankruptcy Procedure, Local Rules of Bankruptcy Procedure and individual bankruptcy judge rules. The Bankruptcy Code is broken down into chapters, which govern things like how the case is administered, rights and remedies of the debtor and creditors and the format for the insolvency proceeding. The most well-known chapter of this last category are 7 and 13, which are the two forms of consumer bankruptcies.
Differences between Chapter 13 and Chapter 7
A chapter 13 comes with it many of the benefits of a chapter 7, such as a stay of most actions taken or to be taken by a creditor against the debtor; a freeze of a foreclosure sale, the release of funds levied and held by a creditor; and the cessation of any garnishment order. A significant benefit in filing under chapter 13 rather than under chapter 7 is the right to withdraw under 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 be denied. A chapter 13 debtor, however, has a near absolute-right to withdraw at any time. Any individual considering a bankruptcy filing should consult with a well-qualified attorney to evaluate whether a bankruptcy is an appropriate solution. This is especially true for potential chapter 13 filers due to the added complexity of this type of case.
Chapter 11 Bankruptcy – More Than a Large Chapter 13
A bankruptcy under chapter 11 (rather than chapter 13) may in some case be necessary for income-earning individuals seeking bankruptcy protection 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. Chapter 11 is often associated with corporate entities (LLC, Corporations, etc.) which are unable to operate without a restructuring of debt but whose values are greater than liquidation of corporate assets, alone. However, individuals may also file under chapter 11. Chapter 11s come with significantly more complexity, cost, and sometimes, flexibility (but without the same right to withdraw) than chapter 13s.