Chapter 7 vs. Chapter 11 Explained
For many people, filing for bankruptcy relief is a difficult decision. Once the decision is made, it is time to decide what chapter of bankruptcy to file. It helps to understand the difference between Chapter 7 vs. Chapter 11 bankruptcies.
Individuals and couples can file under Chapter 7 and Chapter 11. Corporations, partnerships, and other business entities can also file under both chapters of bankruptcy.
For a business, a Chapter 7 case is the final step in shutting down the business. Businesses that file under Chapter 7 do not continue operation.
The difference between Chapter 7 vs. Chapter 11 for a business that Chapter 11 allows a business to continue operating. The Chapter 11 is a reorganization bankruptcy for the business.
Chapter 11 is also a reorganization bankruptcy for individuals. However, Chapter 11 cases are intended for much larger bankruptcy cases that exceed the debt limits of a Chapter 13 case.
The cost difference between Chapter 7 vs. Chapter 11 is extremely wide. The attorney’s fees for a Chapter 7 case are much lower than the attorney fees for a Chapter 11 case.
Filing fees for Chapter 7 vs. Chapter 11 cases are much lower too. The filing fee for a Chapter 7 case is $335. It costs $1,717 to file a Chapter 11 case.
The filing fees are not the only difference in cost for a Chapter 7 vs. Chapter 11 case. Chapter 11 debtors must pay quarterly fees to the U.S. Trustee’s Office while the case is open.
A debtor is not required to pay fees to a Chapter 7 trustee. The filing fee is the only fee a Chapter 7 debtor pays to the court. The fees in a Chapter 7 vs. Chapter 11 case are much lower in Chapter 7.
A Chapter 7 case is a liquidation bankruptcy. Debtors who have non-exempt equity in property may lose that property in a Chapter 7 vs. Chapter 11 case.
Most Chapter 7 cases filed by individuals are no-asset cases. No-asset cases mean the debtors keep all assets, but get rid of substantial debts.
A business that files Chapter 7 vs. Chapter 11 closes its doors. The trustee sells the business assets to pay unsecured creditors in a Chapter 7 vs. Chapter 11 case. Secured creditors repossess or foreclose on the collateral.
In a Chapter 11 case, the debtor chooses whether to keep the property or surrender property to creditors. If the property does not have a lien, the debtor keeps the property.
Debts are handled differently in Chapter 7 vs. Chapter 11 cases. Debtors in Chapter 7 cases do not pay creditors back. If a trustee sells the property, the creditors receive a share of the money.
In a Chapter 11 case, the debtor must file a reorganization plan. The plan states how the debtor will pay back the creditors.
In a Chapter 11 filing, the owners of the business continue to operate the business.
A trustee is appointed in a Chapter 7 case to close the business. The trustee may operate the business for a short time if that generates more money for the creditors.
The time to complete a Chapter 7 vs. Chapter 11 case is very different.
A Chapter 7 case for individuals can be completed in four to six months. Chapter 11 cases for individuals can last several years.
A business that files under Chapter 11 is in bankruptcy for several years in most cases. A Chapter 7 for a business could be completed in a year or two, depending on the size of the business.
The basic bankruptcy forms in a Chapter 7 vs. Chapter 11 are the same in both bankruptcy cases.
Chapter 11 cases have additional forms that must be filed. A "plan of reorganization" is one of the forms in a Chapter 11 case that is not in a Chapter 7 case.
The forms in a Chapter 11 case are more complicated than forms in a Chapter 7 case.
You can file a Chapter 7 case without an attorney. Upsolve can help you complete the forms to file a Chapter 7 case if you cannot afford an attorney. We are a non-profit company that helps individuals who need a fresh start, but who cannot afford an attorney.
Businesses do not receive a discharge of debts. In a Chapter 7 case, the business closes.
In a Chapter 11 case, the business reorganizes its debts in a repayment plan.
If you cannot afford to pay your debts, you probably need to file a Chapter 7 case. A Chapter 7 case gets rid of most, if not all, of your unsecured debts.
Upsolve can help you determine if you qualify to file under Chapter 7. You must meet income requirements for a Chapter 7 case.
Chapter 7 vs. Chapter 11 bankruptcy cases are designed for people who have little to no income left each month after paying living expenses. The Means Test calculates your average income for the past six months.
Most people who file Chapter 7 are struggling to pay living expenses. Upsolve’s mission is to help people who need debt relief but who cannot afford to pay an attorney.
We can help you complete your bankruptcy forms to file Chapter 7. A bankruptcy attorney reviews the forms before you file them with the bankruptcy court.
Each bankruptcy case is different. However, most people who file a Chapter 7 case do not lose any property.
In a Chapter 11 case, the debtor keeps property, but must pay back creditors.
Debtors do not pay back unsecured creditors in a Chapter 7 case. Unsecured creditors include credit card debt, medical bills, and personal loans.
Debtors must attend a Meeting of Creditors in each bankruptcy case regardless of filing under Chapter 7 vs. Chapter 11. However, Chapter 7 cases usually do not have any other court hearings.
There are numerous court hearings a debtor attends in a Chapter 11 case.
If you are ready to begin exploring a bankruptcy filing, Upsolve can help. We walk you through the process in a step-by-step process.
You can get the help you need to get out of debt, even if you cannot afford to pay a bankruptcy attorney.
If you need a fresh start, click here to start Upsolve's free bankruptcy process. You'll be glad you did.