Chapter 7 bankruptcy is available to individuals as well as businesses. Under the bankruptcy code a “person” for the purposes of filing bankruptcy is defined as an individual, partnership, and/or corporation. A Chapter 7 bankruptcy requires the collection of the debtor’s non-exempt property for sale or liquidation and the cash proceeds from the sale is paid on a pro rata basis to creditors with claims against the estate. Within 40 to 60 days after the filing of a Voluntary Petition for Chapter 7 bankruptcy, a meeting of the creditors occurs. The debtor must be present at the meeting of the creditors, but creditors need not appear to protect their claims. Chapter 7 bankruptcy generally eliminates a debtor’s debt and unsecured creditors generally receive no or minimal payment for their claims. Secured creditors continue to be paid in full if the individual wishes to keep the secured property. If the individual does not want to keep the secured property, the individual may return the secured property/collateral (for example, a vehicle or house). Once the secured property is returned, the secured creditor may take no further action against the individual for collection. The return of the property is considered full and final payment no matter how much is owed and no matter how much the property is worth.
Like a Chapter 7 bankruptcy, any person (individual, corporation or partnership) may file a Chapter 11 bankruptcy petition. In a Chapter 11 bankruptcy the debtor typically remains in control of the business and the property of the bankruptcy estate as the “debtor-in-possession”. The debtor-in possession is an official title with the bankruptcy court and requires the debtor to assume the duties, responsibilities and powers that a trustee would in the administration of an estate. In a Chapter 11 bankruptcy, the Debtor is granted 120 days from the date of filing a Chapter 11 petition in which to propose a plan for reorganization of its debt and/or business. The plan details what the Creditors will be paid, how much they will be paid, and when. The creditors have the right to reject or accept the Plan.
Chapter 13 bankruptcy is designed to restructure the debts of an individual. In a Chapter 13 bankruptcy case, individuals file a Plan to repay some or all of their debts over a period of time (usually 60 months). The amount that must be paid to creditors is determined by an individual’s specific income and expenses. When individuals file a Chapter 13 case, they will begin to make one monthly payment to the Chapter 13 trustee as determined by their Plan. The trustee will distribute the payment to the creditors. Once all of the Plan payments are made, the individual will be granted a discharge.