Bankruptcy protection is a strategy for businesses and individuals to discharge debts and resolve disputes with creditors. Bankruptcy offers a fresh financial start to those facing financial difficulties, providing needed breathing room from creditor actions to reorganize or liquidate debt.
There are six different types of bankruptcies: Chapters 7, 9, 11, 12, 13 and 15. Chapter 9 is used by municipalities. Chapter 12 applies to family farmers and fisherman, Chapter 13 bankruptcy is a repayment plan for individual filers who may not qualify for chapter 7 based on income and/or have nonexempt assets they wish to keep. Chapter 15 applies to cross border cases. Out of all the bankruptcies, Chapter 7 and Chapter 11 are the most commonly used by individuals and businesses, with subchapter V of Chapter 11 offering a more streamlined and less costly alternative for companies and individuals that meet the qualifications.
Among the key players in a bankruptcy include a debtor – an individual or entity – who has either decided to file for bankruptcy protection or has been forced by creditors. A debtor in possession is a debtor in a Chapter 11 case who remains in possession of its assets and continues to manage the business affairs. A trustee makes sure the bankruptcy is run in compliance with the law and the bankruptcy plan and may take control of the debtor’s assets to sell and distributor to creditors. A trustee, and a debtor in possession, are considered official representatives of the estate and owe fiduciary duties to the estate and creditors.
In a Chapter 7 bankruptcy, sometimes referred to as a liquidation bankruptcy, unsecured debt such as credit card debt, medical bills, and unsecured loans are discharged and a trustee will sell any nonexempt assets that a debtor has to pay off creditors. Individuals with modest incomes and few assets are good candidates for Chapter 7 relief. Businesses that intend to close rather than reorganize may also benefit from a Chapter 7 also.
In a Chapter 11 bankruptcy, the goal is reorganization. The Chapter 11 plan will detail how debts will be paid over a defined period of time. Business of all sizes may reorganize under chapter 11, however smaller businesses may seek protection under Subchapter V, Chapter 11 as it can be more cost effective and less time consuming than traditional Chapter 11. The role of a Subchapter V trustee is to assist the debtor in possession in the bankruptcy case, including negotiating with creditors.
When you have questions regarding bankruptcy protection for individuals and businesses, you can rely on Charles E. Covey for an honest assessment of your financial situation. Call 309-674-8125 for your free consultation. To contact attorney Covey by e-mail, please use our contact form.