What Is Chapter 7 Bankruptcy?

Any law can be quite confusing and bankruptcy is not an exception. While the term bankruptcy may appear to be simple and most Americans know the implications of the law, yet there are various chapters that segregate the various types of bankruptcies that one can file for.

There are 4 chapters of bankruptcy – Chapter 7, Chapter 11, Chapter 12 and Chapter 13. Although the primary objective of all chapters is to declare inability to pay back creditors, still there are some subtle and noticeable differences.

Chapter 7 Bankruptcy deals in liquidation of property, business and/or any movable and immovable assets of the applicant in order to settle (pay back) debts. Secured loans and unsecured loans may all come into the peripherals of Chapter 7 Bankruptcy.

The Chapter 7 of bankruptcy laws can be applied in case of businesses as well as individuals. For a business the chapter 7 of bankruptcy would require the board of directors or partners of a company to cease their operations at the time of filing. Following the filing, a bankruptcy court evaluates the application and appoints a trustee who would then cater to all the further tasks. A trustee would oversee liquidation of all properties and assets of a company and repay the debts to all creditors. Some secured creditors who have designated collaterals may be exempted from the Chapter 7 bankruptcy law. The trustee may not liquidate all the assets of a business. The necessity is to sell off assets that are enough to pay off all pending debts.

nyc chapter 7 bankruptcy lawyerFor individuals, the law as per Chapter 7 of Bankruptcy works pretty much in the same manner as that of businesses with minor changes. When an individual files for bankruptcy under Chapter 7, the properties would still be sold off to settle debts but the debts are strictly classified into several categories. Personal financial commitments are not covered and hence not paid for under Chapter 7 of bankruptcy. An individual may not seek respite from attending to financial commitments and taxes under this section. However, the opportunity of being able to dispose off assets to settle debts and other aspects are the same as that for a business as per Chapter 7 Bankruptcy.

Chapter 7 Bankruptcy can be a voluntary move by businesses and individuals or creditors may even compel an entity or a person to file for the same.

What Is A Chapter 13 Bankruptcy?

According to, chapter 13 bankruptcy is a form of bankruptcy that allows people to create a payment plan to eliminate the debts they owe. The person will create a payment plan that may last from three to five years. Chapter 13 bankruptcy has several benefits. For homeowners, chapter 13 bankruptcy allows you to keep your home while making payments to mortgage lenders. It’s also easier to pay debts under Chapter 13 because you’ll be able to consolidate all your debts and make payments to the trustee over your payment plan.

You may wonder who qualifies for Chapter 13 bankruptcy. Individuals and business owners are able to file for Chapter 13 bankruptcy if their unsecured debts are less than $360,475 and if secure debts are less than $1,081,400. You can’t file for Chapter 13 bankruptcy if you were denied a petition during the past 180 days due to a refusal to attend the hearing.  You also can’t file for Chapter 13 bankruptcy unless you receive credit counseling 180 days before you file for it.

Here is how the filing process works. First you would file a petition with the bankruptcy court in your city. You also need to bring a list of your assets and liabilities, current income and expenses and other financial documents. Another thing you’ll have to do is file a certificate of credit counseling along with a repayment plan. You must pay a fee of $235 along with a $46 administrative fee. After you file for bankruptcy a trustee is assigned to you and this trustee is the person who you’ll pay the debts to you. When you have Chapter 13 bankruptcy protection, you’ll be able to keep your home and this stops certain collection agencies from trying to collect debt.

One benefit of Chapter 13 bankruptcy is that you’re able to make flexible payments on debts. If you’re not able to pay down debts within three years, the court can change it to at least five years so that it will be easier to make payments. Chapter 13 bankruptcy also gives you peace of mind because you’ll be able to pay debts without the harassment of collectors or extra stress. In conclusion, Chapter 13 bankruptcy allows you to start over and build a better financial future based on financial maturity and wiser choices. Chapter 13 bankruptcy shouldn’t be seen as a quick fix to financial problems but rather a helping hand while you improve your financial situation.

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About Peter Mertz

  • Peter Mertz is here to provide ample support in your bankruptcy matters. Peter Mertz is also a certified public accountant.
  • Peter Mertz
    Peter Mertz is a New York City Bankruptcy Lawyer and CPA. He has been helping those in Manhattan and the surrounding burroughs recover their financial freedom.
    226 E 85th St
    New York
    United States

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