Accruing high amounts of debt is common in our credit-driven world, causing many to go through undue financial stress over whether they can afford to make payments on time. The unfortunate reality is that many cannot afford to do so, opting to declare bankruptcy to settle any debts before everything is lost. There are two types of bankruptcy protection: Chapter 7 and Chapter 11. Understanding the differences between them is vital to ensuring that you choose the best option that fits your situation.
Chapter 7: Simply put, Chapter 7 bankruptcy liquidates all non-exempt assets of the debtor and sells them to the creditors to settle all debts. Debtors would forfeit their property to the creditors and subject their property to possible liens and mortgages.
Chapter 11: Here, the debtor would propose a plan of reorganization to the creditors to keep the business alive and pay back their debt over time.
- Corporations or partnerships typically file Chapter 11 bankruptcy, so only their stockholders' and owners' investments in the corporation are subject to bankruptcy.
- Small businesses can file either a “small business case” or a “subchapter V” based on the debt limits that are dependent on each circumstance. The overall advantages of doing so are accelerated deadlines and fast plan approvals. Note that by filing under a small business case, debtors are subject to review by a U.S. trustee.
- Single Asset Real Estate (SARE) is a single property or project that generates substantially the debtor's gross income, who is not a family farmer. On such property, the debtor is not conducting any substantial business other than the property operation and its related activities. These properties are not residential real properties with fewer than four units. Examples of such entities are shopping centers, office buildings, and apartment complexes.
In a SARE case, creditors may bypass a court's grant of automatic stay unless the debtor submits a feasible reorganization plan or makes interest payments within either 90 days from filing bankruptcy or 30 days of the court's determination that the case is a SARE case.
Filing for Chapter 11 bankruptcy instead of Chapter 7 bankruptcy is always recommended if you meet the requirements to do so. Typically, bankruptcy is reserved as the last resort for any debt issues, but there are viable options to save yourself from complete liquidation. If you have any questions regarding bankruptcy, please don't hesitate the contact the Law Offices of Edward C. Ip & Associates, APC at (626) 228-0638.
**The information provided on this post does not and is not intended to constitute legal advice. Rather, any and all information, content, and material on this post is for information purposes only.**