Chapter 7 bankruptcy is the most prevalent type of bankruptcy and allows the insolvent to resolve their financial crisis by selling assets and converting them into cash. It entails the liquidation of the debtor's non-exempt assets after they have been transferred to a fiduciary, followed by their distribution among the claim holders (creditors).
Since not all creditors will receive money from the proceeds, a significant portion of these debts will be forgiven or cancelled. However, taxes, child support, alimony, and a small number of types of student loans cannot be discharged under current law. Chapter 7 bankruptcy cannot be entered again for seven years after the initial filing.
Chapter 11 focuses primarily on corporate insolvency. One of its primary characteristics is that it permits businesses to reorganize and restructure their debt issues. Additionally, it allows them to escape certain restrictive contracts and agreements.
One of the primary advantages of filing Chapter 11 bankruptcy is that the stockholder's personal assets are not at risk; only the investment value in the company's equities is lost.
Chapter 13: Bankruptcy Chapter 13 parallels Chapter 11. The primary distinction is that under chapter 13 there is a cap on the quantity of debt owed to creditors. It is primarily intended for individuals with a steady income who are permitted to follow a debt repayment plan.
Alternatively known as Wage earner's bankruptcy.
The US Bankruptcy Code places a five-year limit on the debtor's ability to repay creditors, meaning that the debt must be repaid within that time frame.
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