Definitions & Explanations
There are two basic types of bankruptcy cases: liquidation and reorganization. A Chapter 7 deals with liquidation proceedings whereas Chapters 11 and 13 deal with reorganizations.
A liquidation is the sale of your property that cannot be exempted (protected). If most or all of your property falls under the “exempt” category then no sale takes place and you get to keep your property.
A reorganization usually consists of a plan to pay creditors at least a portion of their debts over an extended period of time.
A Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. This type of bankruptcy looks at your income and also the value of your assets. It is possible to be asset-rich and cash-poor.
A Chapter 13, commonly known as “Wage Earner Plan” or “Payback Plan,” deals with the reorganization of individuals with regular income. This helps people pay back some, most, or all of their debts in a more manageable way. One of the benefits is that government interest and penalties stop accruing while you are in an active Chapter 13.
A Chapter 11 deals with reorganizations of businesses and individuals who owe more than what a Chapter 13 is designed to handle.
A bankruptcy discharge removes a debtor’s obligation to repay certain debts. This is often just referred to as simply a “discharge.” This is the ultimate goal of a bankruptcy. This is the “finish-line”