Differences Between Bankruptcy Chapters
Most struggling debtors don’t know that bankruptcy isn’t one-size-fits-all. United States bankruptcy law provides individuals, families, and businesses with multiple options for obtaining lasting debt relief depending on their goals, income, and financial circumstances. You can even keep your home and business running while benefiting from South Carolina bankruptcy protections.
Discuss the best option in your case with the experienced Florence, S.C., bankruptcy attorneys at Reed Law Firm, P.A. Call (803) 726-4888 or confidentially connect with our debt relief team online to begin your journey toward financial freedom.
Overview of Federal Bankruptcy Laws
The United States Constitution gives Congress the right to pass specific bankruptcy laws. It did so by creating ‘chapters’, which is another way of saying different types of bankruptcy proceedings. When you file for bankruptcy, you file under a specific chapter of the U.S. bankruptcy code. There are six main bankruptcy chapters –7, 9, 11, 12, 13, and 15– but most Florence bankruptcy proceedings are filed under Chapters 7, 11, or 13.
Chapter 7 Liquidation Bankruptcy
When you think of traditional bankruptcy, you’re likely referring to Chapter 7 liquidation. Eligible individuals and businesses can file for Chapter 7 if their monthly debts and expenses far exceed their household income. Your income must fall below the state median level, or you must otherwise pass a means test to qualify for Chapter 7 bankruptcy relief.
During Chapter 7 proceedings, the court gathers and sells all non-exempt assets (leaving you with a small nest egg) and distributes the money based on creditor priority. Most remaining consumer debts are then completely discharged, meaning creditors can no longer collect or sue on the following:
- Mortgage deficiency
- Auto loan deficiency
- Credit cards
- Personal loans
- Medical debt
- Utility arrears
- Past-due rent
Although Chapter 7 discharges your eligible debts, even if you can’t pay a single penny, it does not allow you to keep your home, vehicles, savings, or most valuable assets.
Chapter 13 Wage Earner’s Bankruptcy
If you have a stable income, you might qualify to file for bankruptcy under Chapter 13. This type of bankruptcy, also called a wage earner’s plan or individual debt adjustment, restructures your debts into one manageable monthly payment. It also allows petitioners to fold mortgage arrears into the plan and stop foreclosure proceedings, giving you the chance to keep your home, vehicles, and assets. During Chapter 13 proceedings, you’re required to make monthly payments for 3 to 5 years, depending on your income. After completing the payment plan, the court discharges any remaining consumer debts.
Chapter 11 Business Reorganization
Partnerships and corporations can file for reorganization under Chapter 11, which functions similarly to Chapter 13. Under Chapter 11, businesses can keep functioning and even borrow money while working with creditors and the court to restructure and pay their debts over time. Chapter 11 proceedings can be voluntary or involuntary, but they allow you to stay in business while also stopping civil litigation and debt collection.
Your Individual and Business Bankruptcy Attorneys in Florence, S.C.
Choose the right type of bankruptcy in your case with help from the experienced Florence bankruptcy lawyers at Reed Law Firm, P.A. Call (803) 726-4888 or connect with our debt relief team online to discuss a new start for your family or business.
