Chapters 7 & 11 Bankruptcy
Chapter 7 is the liquidation of all non-exempt property into cash to use to pay creditors. A discharge of all allowable debts is done in about 4 months. A “fresh start” is given to an individual who is overwhelmed by significant debts.
Any credit you obtained by providing false information cannot be discharged. Purchases of more than $500 in luxury items within the last 3 months cannot be discharged. Loans or cash advances above $750 within the last 70 days cannot be discharged.
- You should consult a lawyer with your questions
Business (Chapter 7 & 11)
Chapter 11: company reorganizes & tries to become profitable, management runs day-to-day operations, but any major decisions must be made by the bankruptcy court
Chapter 7: company goes out of business and everything is liquidated to pay the debts
-What happens to any stocks and bonds that were issued?
The company may continue to trade after Chapter 11 bankruptcy is filed. Most businesses who file Chapter 11 cannot meet the standards to trade on the exchanges, but there is no law preventing trading. Chapter 7 bankruptcy renders any stocks and bonds as worthless.
Most businesses choose Chapter 11 versus Chapter 7 because they can continue to operate their business and control their assets. Other businesses who are so far in debt and cannot stay afloat daily choose Chapter 7 and close their doors.
- Chapter 11 is the most costly and complicated but has no ceiling to the amount of debt
- The debtor is still able to control their assets and stay in control of their business operations. A trustee may be appointed to ensure debts are repaid if the debtor's management of finances is in question.