Chapter 7 bankruptcy is also referred to as straight bankruptcy or total liquidation. Under Chapter 7, the debtor seeks to attain a discharge of unsettled debt. The discharge is a court order which pardons the debtor from having to pay debt categorized by the bankruptcy law as “dischargeable.” The discharge serves as a permanent injunction against otherwise potential collection action for debt acquired prior to the bankruptcy. A Chapter 7 bankruptcy discharge allows you to move forward without financial unrest, by providing the defaulter with an opportunity for a brand new start. The majority of debts are dischargeable,including credit card balances, bank loans, medical bills and court judgments. Debt classified by the bankruptcy law as non-dischargeable includes certain types of tax debt, most student loans, government fines, debts incurred from criminal or fraudulent conduct and reimbursement for outstanding child and/or spousal support. The recent bankruptcy law changes make Chapter 7 more difficult to file.
Chapter 13 Bankruptcy is also referred to as wage earner bankruptcy or repayment plan. Chapter 13 forces creditors to mend their debt, stop interest, and stop late penalties. This is Federal debt consolidation. Chapter 13 of the U.S. Bankruptcy Code is designed primarily for residential homeowners and allows an individual or married couple to repay all or a portion of their debts under the supervision and protection of the United States Bankruptcy Court. Chapter 13 is designed for working people with steady incomes who want to pay their debts but are currently overwhelmed with bills, judgments, lawsuits, and other financial problems. Chapter 13 bankruptcy plans enable individuals to repay outstanding mortgage amounts and some other debts over a three to five year period. Chapter 13 is what the new bankruptcy legislation intended to steer people toward.
Chapter 11 of the U.S. Bankruptcy Code is primarily designed to assist businesses recover from debilitating business decisions of the past. Chapter 11 bankruptcy is also known as Business Debt Reorganization. Chapter 11 is unique in that the debtor remains in possession of all assets and the ongoing business. Chapter 11 allows businesses to continue to operate without the day to day burden of their pre-existing debt obligations, giving them the opportunity to develop a plan to restructure their debt as well as to potentially relieve them of certain burdensome leases and contracts. In a typical Chapter 11 bankruptcy proceeding, management continues to run the day-to-day operation of the business. Many significant business decisions may require court authorization, such as the termination of certain agreements or the sale of assets outside of the regular course of business.
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