A chapter 7 filing is a liquidation bankruptcy also referred to as a “straight bankruptcy”. The advantage of this type of filing is that the client, the Debtor, is released of future obligations for past debts. This type of filing does not necessarily wipe out all mortgages or liens. In most cases if the client wants to retain property such as a house or automobile, which was used as security for a past loan, the client must keep up with the payments of these items. Many times the amount of the future payment on the house or vehicle can be modified. Alternatively, if the Debtor prefers to be relieved of this debt they can surrender the property which was pledged as collateral for the initial loan. A Chapter 7 filing also allows the Debtor to keep certain exemptions which are determined by state and federal law.
For some clients a chapter 13 filing is the best alternative. Under these proceedings, the client will pay all or part of his debt from future income over a period of time decided by the courts. These payments are made through a trustee. The amount paid is determined by the amount creditors would receive if the client filed Chapter 7. A Chapter 13 Debtor usually pays creditors only a small portion of the debt owed.
Chapter 11 is primarily used by businesses to reorganize their debts while remaining in operations. An individual with a large amount of debt also has the alternative to file a Chapter 11. After the filing of the Chapter 11, the Debtor is given an opportunity to submit a Plan Of Reorganization to repay creditors a percentage of their debt. Chapter 11 is a more complicated proceeding which is usually only used by an individual who does not qualify for a Chapter 13.