Bankruptcy Law: Chapters 7 & 11

The differences between Chapters 7 and 11 bankruptcy law are numerous. This is due mainly to the legal debt solution structure. Though Chapter 7 can be used by both businesses and consumers alike, it has become more difficult for individuals to file since the 2005 reform laws went into effect. Chapter 11 is used mainly by corporations as a restructuring procedure, and does not mean that the business in question has to dissolve, unlike businesses utilizing Chapter 7. In this article, we will walk you through the differences between Chapters 7 & 11.

Chapter 7 For Individuals

Individuals interested in filing for Chapter 7, which works to alleviate virtually all debt, must meet the standards set forth in the reform laws of 2005. This is due to many individuals abusing the system. These days, individuals looking for a fresh start are required to make less than the average income for the state in which they reside. In addition, individuals will be require to seek credit counseling prior to the federal bankruptcy court accepting their paperwork. Because of this, many individual are being pushed to Chapter 13 programs, which works as a debt repayment, supervised by the court.

Chapter 7 For Businesses

Companies that are unable to pay off their debt are also allowed to file for Chapter 7, though, they remain unaffected by the 2005 reformation. Any assets from the business are sold off to creditor losses, essentially putting an end to that particular company. In some cases, a trustee is able to sell assets from the company to other businesses as a way to minimize layoffs as a result of the filing.

Chapter 11

The vast majority of Chapter 11 filings are from corporations and businesses, however some instances may see that proprietor of the business doing the filing on their own. This option offers businesses the opportunity to restructure and repay their debts via a court-supervised program. Courts may decide that some contracts are unfair and make repayment unnecessary. Businesses who have file under Chapter 11 are not allowed to be listed on the public stock exchange. In most cases, companies who decide to file will eventually collapse.

Reform Effects

As stated above, the 2005 reform did not affect businesses. This has caused quite a bit of controversy, especially following the Enron Corporation case in early 2001. A great deal of individuals lost retirement accounts and fraud suspicions were abundant. Many critics have stated that the courts should have chosen to pay more attention to shady business practices than individuals going through a rough patch. But at least for now, it stands that individuals hoping to declare will have to undergo a bit more debate and hassle during the filing process than corporations.

If you are interested in learning more about the debt relief area, the best place to turn is the office of an experienced attorney who specializes in bankruptcy law. He or she will be able to evaluate your individual situation and offer up advice on how best to deal with it.