Once the decision has been made however, the next question is which chapter to file under. You and your attorney will need to consider such things as:

Qualifications:

• Are you filing as an individual person, or as a business?
• Does your net worth and income disqualify you from certain chapters?

Goals:

• Are you willing to liquidate (sell) your assets to obtain debt forgiveness?
• Or, do you want to keep your assets and develop a repayment plan?

Expenses:

• Court and attorney costs vary greatly depending on which chapter you file.

The U.S. Bankruptcy Code contains six different chapters, providing 6 different types of debt relief. Of these, Chapters 7, 13 and 11 are by far the most commonly used. Out of approximately 1.4 million bankruptcies filed in 2009, 70% were Ch. 7, 28% were Ch. 13, and 1% were Ch. 11. All of these chapters have two features in common:

1. An AUTOMATIC STAY from collection activities – which means creditors must stop contacting you.
2. Some level of DEBT FORGIVENESS – allowing you a fresh start.

Chapter 7

Chapter 7, often referred to as “liquidation” may be used by individual persons or by businesses. Under Chapter 7, you must disclose your assets, debts, income and expenses. This information is used to determine whether meet the federal “Means Test.” If you qualify under the Means Test, then you may proceed. If you do not qualify, your attorney may be able to help you either meet the qualifications or choose a different chapter to file.

Once you file your Chapter 7 bankruptcy, the automatic stay goes into effect and creditors must cease collection activities. You are entitled to keep exempt personal assets, and your remaining assets are used to satisfy your creditors to the extent possible. Your remaining debts are discharged, or forgiven, when your case closes and you receive a fresh start to start rebuilding your financial life.

The vast majority of Chapter 7 cases are fully completed within six months from filing.

Chapter 13

The second most commonly used bankruptcy procedure is Chapter 13. Under Chapter 13, you work with your attorney and financial advisor to develop a 3-5 year repayment plan that your creditors will approve. As with Chapter 7, an automatic stay occurs at the time that you file. Remaining unpaid debts are discharged, or forgiven, when you have completed the 3-5 year plan.

• Chapter 13 is only available to individual persons
• Chapter 13 allows you to keep your assets
• Chapter 13 is particularly appropriate if you are employed and thus have regular income

There are certain net worth limitations to qualify to file Chapter 13 bankruptcy.

Chapter 11

Finally, Chapter 11 is available to both businesses and individuals. Like Chapter 13, Chapter 11 provides for debt relief through a repayment plan. It is chosen by:

• Businesses that have value as a going concern
• Individual persons who may not qualify for Chapter 7 or Chapter 13

Chapter 11 will be more expensive than the other chapters, as both filing fees and legal work will be significantly greater.

To learn more about whether bankruptcy is the best option for you, call us today to schedule a free Debt Relief Consultation.