Differences Between Chapter 11 and Chapter 7 Bankruptcy

It is important to understand the differences between Chapter 7 and Chapter 11 bankruptcy in order to make the right decision for you or your business says Bunch & Brock 

LEXINGTON, Ky., Oct. 18, 2022 /PRNewswire/ -- The Key Differences Between Chapter 11 and Chapter 7

Two different chapters of the Bankruptcy Code, Chapter 7 and Chapter 11, are alternative forms of bankruptcy that are both available to individuals and companies facing a dire financial situation.

Attorney Matthew Bunch says, "Bankruptcy is a scary concept to most people, but bankruptcy laws exist to give people and businesses in financial straits a chance to start over."

In a Chapter 7 bankruptcy, assets are liquidated to pay creditors, with secured debts having priority over unsecured debts. In a Chapter 11 bankruptcy, a company is restructured under the supervision of a trustee appointed by the court. The company continues to operate, paying its debts back with future earnings.

Both forms of bankruptcy require a trustee to be appointed by the bankruptcy court. Chapter 7 is typically used by individuals, while Chapter 11 is more often used by businesses due to its complexity and expense.

Chapter 7 bankruptcy, or "liquidation" bankruptcy, allows the debtor to sell assets and use the proceeds to repay debts. While some debts, like tax liens and child support, cannot be forgiven, most debts can be discharged. According to the Administrative Office of the U.S. Courts, there were almost 400,000 non-business bankruptcy filings in 2021, with 70% of those cases being Chapter 7 bankruptcies.

Attorney Thomas Bunch explains, "In these uncertain financial times, many people are having to deal with insurmountable debt, and bankruptcy might be their only option to get back on stable ground."

Chapter 7 bankruptcy can be a good option for people who are burdened by overwhelming debt and have no way to repay it. To be eligible to file under Chapter 7, you must first provide information about your income, assets, expenses, and debts as part of a "means test" to determine whether you have the means to repay a portion of your debts.

Chapter 11 bankruptcy, often referred to as reorganization bankruptcy, allows businesses to continue operating while the debts of the business are restructured. Chapter 11 can be a viable option for struggling small business owners who are in need of debt relief but want to keep their business running.

The experienced attorneys at Bunch & Brock can help you navigate debt solutions like bankruptcy. For more than 30 years, they have helped overwhelmed clients overcome their financial problems.

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SOURCE Bunch & Brock