Difference Between Chapter 7 and Chapter 11 Bankruptcy Laws

Columbus GA Bankruptcy Lawyers

Based on legal debt solution structure, chapter 7 and chapter 11 bankruptcies are significantly different from each other. Chapter 7 bankruptcies can be filed by both individuals as well as businesses while chapter 11 primarily deals with restructuring of business and does not necessarily dissolve it. Chapter 7 corporate bankruptcies involve dissolution of business.

Chapter 7 for Individuals

Chapter 7 file by individuals will have discharge of all debts through dissolution of assets. In order to curb abuse of chapter 7 bankruptcy, new reforms have been introduced. These include compulsory credit counseling as well as eligibility through a means test. The paperwork proving both has to be submitted to federal bankruptcy court.

Chapter 7 for Businesses

Businesses that are in debt and are unable to meet their debt payments can file for bankruptcy under chapter 7. Businesses are not affected by newly introduced reforms. The assets and properties are liquidated and creditors paid off. The corporate entity that filed for insolvency ceases to exist. The court appointed trustee, sometimes sells the assets to other companies with legitimate paper work in an effort to reduce loss of jobs which is a common result of a chapter 7 bankruptcy.

Chapter 11

Chapter 11 is commonly filed by businesses even though self employed individuals and sole proprietors are also eligible. This chapter allows a corporate restructuring and through a court supervised repayment plan business debts can be paid off. There even occur instances where court deems certain contracts to be unfair and excuses the business from paying them. Businesses that have filed for bankruptcy under chapter 11 cannot be listed in public stock exchange even though it is in operation. It is commonly observed that companies filing for bankruptcy eventually close down. 

Reforms in Bankruptcy

Business bankruptcy filings have not been affected by newly introduced bankruptcy reforms. This is currently under lot of controversy. Critics of the reforms not affecting businesses claim that government should be genuinely worried about unscrupulous businesses more than individuals with financial problems. However, as of now, individuals wanting to file for bankruptcy are subjected to strict rules and regulations as compared to businesses.

Non-Dischargeable Debts

One factor to be confronted with while considering consumer and business bankruptcy is non dischargeable debts. An individual who files for bankruptcy would have more non dischargeable debts than a business in the same situation. Individuals would have court fines, student loans, taxes, utility bills just prior to bankruptcy etc. This could be the reason why modern bankruptcy law is pro business and not very much pro consumer.

Filing for bankruptcy is an overwhelming experience and an in depth knowledge of the same is mandatory to make right decisions regarding the process and procedures. Taking help from a competent bankruptcy attorney would be advantageous.

If you are searching for Columbus GA bankruptcy attorney or interested in Chapter 7, Chapter 11 or Chapter 13, then call today