Privacy, Business and Law

Chapter 7 is sometimes referred to as “straight bankruptcy.” The debtor files a bankruptcy petition, hands over non-exempt assets to the bankruptcy trustee, and receives a discharge. The availability of liberal exemptions to debtors who are individual persons means that almost all consumer chapter 7 cases are “no asset” cases.

There is no distribution to unsecured creditors. Chapter 13 is available to individual debtors with a regular income, and was formerly known as the “wage earner’s plan.” Under chapter 13, the debtor makes payments equal to his or her disposable income (i.e., income less reasonable living expenses) for a period of at least three and no more than five years. The payments are disbursed to creditors according to their legal priorities under a plan approved by the Court. One of the primary reasons for the filing of a chapter 13 case is to reduce or reorganize payments on secured debt such as auto loans. Chapter 11 is a reorganization chapter primarily used for businesses. A trustee is not automatically appointed in a chapter 11 case. The debtor usually continues to operate its business, and proposes a plan to pay all or a part of its debts.