| Before doing any research, you may believe that | | | | debtor attempting to collect the debt. |
| bankruptcy is simply the process people go through to | | | | An individual may be denied debt discharges under a |
| get out of paying their financial obligations. Bankruptcy | | | | Chapter 7 case if the court finds the individual did not |
| is actually very complicated, and neither option | | | | keep (or produce) adequate financial records, |
| (Chapter 7 or Chapter 11) will allow an individual to get | | | | committed a crime of perjury, was unable to explain |
| out of paying all of your debt! | | | | loss of assets, concealed, destroyed or illegally |
| Chapter 7 bankruptcies are often referred to as the | | | | transferred property to try and move it out from the |
| "liquidation" bankruptcy. Chapter 7 bankruptcies can be | | | | estate, or failed to complete a financial management |
| filed by individuals, partnerships, corporations or any | | | | course as required of all debtors filing bankruptcy. |
| other business entity. | | | | A Chapter 11 bankruptcy is referred to as the |
| If an individual or company is filing Chapter 7, it's | | | | "rehabilitation" bankruptcy. The individual or business |
| because they are beyond the ability of reorganizing | | | | can file for Chapter 11 - or the creditors may |
| their debts and are forced to sell many of their assets | | | | involuntarily file for the debtor in certain situations. Most |
| in order to pay creditors. A trustee is appointed to the | | | | Chapter 11 bankruptcies are filed by corporations or |
| filer, and is responsible for ensuring that any assets | | | | other businesses rather than individuals. |
| that are secured and can be sold are sold - and that | | | | In this type of bankruptcy, the debts are reorganized to |
| the proceeds from the sale are given to the specific | | | | allow the individual or business a better chance of |
| creditor that secured the purchase in the first place. | | | | repaying them and keeping their head above water. |
| If the sale of secured assets result in more money | | | | The creditors are contacted to get different terms on |
| than what is owed to the secured creditors, the | | | | any loans - interest rates may be lowered, the amount |
| assets and cash are pooled together and paid to the | | | | of time you have to repay a debt may be extended |
| outstanding creditors who had provided unsecured | | | | to make the monthly payments lower and hopefully, |
| loans to the individual or business. | | | | easier to manage. A trustee is appointed to supervise |
| One of the main reasons why people and | | | | the assets but nothing is sold at this time. |
| organizations file a Chapter 7 bankruptcy is to | | | | In a Chapter 11 bankruptcy, you aren't getting rid of |
| discharge eligible debts and give themselves a fresh | | | | your debts - you are simply restructuring and changing |
| start. A debtor who successfully files Chapter 7 will | | | | the terms of the debt and making plans to pay it back |
| have no liability for the discharged debts - but there | | | | continuously through future earnings. |
| are many types of debts that cannot be discharged, | | | | If a business is filing Chapter 11, it's expected to |
| including loans used for college, child support and/or | | | | continue operating successfully. If that proves not to be |
| alimony, or a lien on a property. A discharge of debt | | | | possible, the business can then file for Chapter 7 and |
| under a Chapter 7 is only possible for individual debtors | | | | liquidate assets. |
| - not partnerships or other types of corporations. | | | | In both a Chapter 7 and Chapter 11 filing by a |
| Once the proper paperwork is filed with the court to | | | | corporation, it's likely that the common shareholders |
| begin the Chapter 7, creditors must stop contacting the | | | | would receive little or no return on their investments. |