Chapter 7 and 11 - Individuals
Chapter 7 - Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 (often referred to "straight bankruptcy", or liquidation). Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.
In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold (liquidated) by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.
A chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the chapter 7 petition. This contrasts with a chapter 13 bankruptcy, which stays on an individual's credit report for 7 years from the date of filing the chapter 13 petition. This may make credit less available and/or terms less favorable, although high debt can have the same effect. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness. Consumer credit and creditworthiness is a complex subject, however. Future ability to obtain credit is dependent on multiple factors and difficult to predict.
Chapter 11 - An individual may also file for Chapter 11 bankruptcy protection. Many people are surprised that Chapter 11 is available to individuals as it is most commonly known by the public as a tool for large companies such as Borders Books or American Airlines. However, the bankruptcy code provides for individual eligibility. Chapter 11 is only preferable for an individual when their debt exceeds the limits of Chapter 13, specifically: $360,475 of unsecured debt and $1,081,400 in secured debt.
Upon the filing of the Chapter 11 bankruptcy petition, the debtor, be it a business or an individual, becomes a debtor and "debtor-in-possession." The debtor-in-possession has the majority of the rights and responsibilities of a bankruptcy trustee. The only right not available is the right to compensation. The debtor-in-possession can file lawsuits to avoid transfers of money to creditors, obtain loans for the debtor, and accept or reject contracts. Many of these powers must be exercised with court approval. Any creditor or the court, on its own, may seek the appointment of a bankruptcy trustee to replace the debtor-in-possession if they believe that it is in the best interest of the bankruptcy estate and creditors, such as if the debtor-in-possession is mismanaging its assets.
In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold (liquidated) by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.
A chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the chapter 7 petition. This contrasts with a chapter 13 bankruptcy, which stays on an individual's credit report for 7 years from the date of filing the chapter 13 petition. This may make credit less available and/or terms less favorable, although high debt can have the same effect. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness. Consumer credit and creditworthiness is a complex subject, however. Future ability to obtain credit is dependent on multiple factors and difficult to predict.
Chapter 11 - An individual may also file for Chapter 11 bankruptcy protection. Many people are surprised that Chapter 11 is available to individuals as it is most commonly known by the public as a tool for large companies such as Borders Books or American Airlines. However, the bankruptcy code provides for individual eligibility. Chapter 11 is only preferable for an individual when their debt exceeds the limits of Chapter 13, specifically: $360,475 of unsecured debt and $1,081,400 in secured debt.
Upon the filing of the Chapter 11 bankruptcy petition, the debtor, be it a business or an individual, becomes a debtor and "debtor-in-possession." The debtor-in-possession has the majority of the rights and responsibilities of a bankruptcy trustee. The only right not available is the right to compensation. The debtor-in-possession can file lawsuits to avoid transfers of money to creditors, obtain loans for the debtor, and accept or reject contracts. Many of these powers must be exercised with court approval. Any creditor or the court, on its own, may seek the appointment of a bankruptcy trustee to replace the debtor-in-possession if they believe that it is in the best interest of the bankruptcy estate and creditors, such as if the debtor-in-possession is mismanaging its assets.
