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Generally, chapter 13 is preferred by debtors who have a valuable asset, such as a home, that is not completely covered by exemptions and that they wish to keep. This is possible because under Chapter 13 a debtor proposes a plan to repay creditors over a three to five year period during which the debtor can make up overdue payments on any assets and pay into the plan the equivalent value of any assets not covered by exemptions. Since the debtors plan will require regular monthly or biweekly payments, Chapter 13 is usually only appropriate for an individual debtor who has a regular source of income.

At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code’s requirements for confirmation. Chapter 13 is very different from chapter 7, since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect. The discharge is also considerably broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

Link to more information:

Bankruptcy Basic, US Bankruptcy Court

 
 
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Chapter 11 Bankruptcy is a reorganization procedure used by businesses, including sole proprietors, partnerships, and corporations. The debtor in chapter 11 files a petition which includes a list of assets and liabilities, and a detailed statement of financial affairs. The debtor will typically act as his own trustee, called a "debtor in possession", and will remain in possession of all estate property. The court can appoint a trustee for cause shown, including mismanagement.

The Debtor

About one month after the filing, the debtor and his attorney attend a meeting of creditors. The debtor files monthly operating reports, showing income and disbursements, profit and loss, and a balance sheet, and pays quarterly fees to the U.S. Trustee based on the amount of money disbursed.

The debtor has the exclusive right to file a plan during the first 4 months. Thereafter, creditors are permitted to file plans. The Chapter 11 plan is accompanied by a disclosure statement, which describes the debtor’s financial circumstances, including:

  • Prior History and cause of the Filing
  • Assets and liabilities
  • Income and expenses
  • Treatment of creditors
  • Liquidation analysis
  • Projections of earnings
  • Tax consequences
  • Discussion of options
Link to more information:

Bankruptcy Basice, US Bankruptcy Court 


 
 
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Chapter 7 is designed as an orderly, court-supervised procedure by which a trustee collects the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” Usually a debtors with assets that they wish to keep and that are not covered by exemptions file chapter 13 bankruptcy.

A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for certain dischargeable debts. The debtor normally receives a discharge three to four months after the petition is filed.

Link to more information:

Bankruptcy Basics, US Bankruptcy Court