Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy.
Chapter 7 is considered a liquidation bankruptcy: it doesn't require a repayment plan but the business has to sell some assets to pay creditors. Chapter 11 is considered a reorganization bankruptcy that allows businesses to maintain their operations while creating a plan to repay creditors.
The filer doesn't have to meet any debt limits under Chapter 11 rules and there are no limits to file. Chapter 13, on the other hand, is generally used by those with a stable source of income. Unlike Chapter 11, there are debt limits that filers must meet debt limits to qualify.
Some eligible debts may even be eliminated. The company reputation takes a hit: Bankruptcy records are publicly available, so the filing robs your business of some of its privacy and can also result in a loss of public trust or a negative reputation.
Some Loss of Control Over Business Operations
This generally means that activities like selling, purchasing, refinancing, or leasing major capital assets require court approval.
This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.
The more nonexempt property you keep will increase the amount you owe in your repayment plan, but you will likely get to keep your house.
Filing for bankruptcy immediately affects your credit score. How significant the impact is a matter of what score you brought into the bankruptcy filing process. A person with an average 680 score would lose between 130 and 150 points in bankruptcy.
Secured creditors like banks are going to get paid first. This is because their credit is secured by assets—typically ones that your business controls. Your plan and the courts may consider how integral the assets are that secure your loans to determine which secured creditors get paid first though.
In total, the fees to file for Chapter 11 bankruptcy are $1,738. This amount must be paid to the clerk of court when the debtor files for Chapter 11 bankruptcy. In some circumstances, by permission of the court, the debtor may be able to pay in installments.
An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy ...
Chapter 12 is designed for "family farmers" or "family fishermen" with "regular annual income." It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts.
Get Your Filing Fee (or Apply for a Fee Waiver)
If you don't qualify for the fee waiver and can't afford to pay the $338 filing fee, you have another option: You can apply to the court to pay your filing fee in four installments within 120 days of filing bankruptcy.
In California, the filer of bankruptcies in California is responsible for all associated costs, including: Court fees. Trustee fees. Attorney fees.
Some banks will freeze your account to preserve the money for creditors when they receive notice of your bankruptcy. If the funds are yours—for instance, the money is post-filing income—you or your attorney should contact the bankruptcy trustee. The trustee will instruct the bank to lift the freeze.
Over this 12-18 month timeframe, your FICO credit report can go from bad credit (poor credit is traditionally less than 579) back to the fair range (580-669) if you work to rebuild your credit. Achieving a good (670-739), very good (740-799), or excellent (800-850) credit score will take much longer.
VantageScore and FICO scores range from 300 to 850, making 300 the lowest credit score possible. While credit scores as low as 300 are possible, most consumers have scores above 700.
You no longer have full control over your company. Court approvals are needed for business operations such as refinancing, vendor agreements, and business expansion. And, just to get a court to agree to a Chapter 11 petition, you have to prove that the company can be profitable under a Chapter 11 reorganization.
Only about 10% of Chapter 11 filings result in success; far more often, they end up in Chapter 7 straight bankruptcy, in which the company closes and its assets are sold to pay back secured creditors.
Even though a Chapter 7 bankruptcy discharge wipes out your obligation to repay the loan, it doesn't eliminate the mortgage lien.
Protection Under the Automatic Stay
Filing for bankruptcy under Chapter 11 provides immediate protection under the automatic stay. The automatic stay prevents the company's creditors from pursuing collection or otherwise attempting to enforce their debts.
In addition, Chapter 11 may be denied if the business fails to get credit counseling 180 days before filing. The court considers credit counseling to be an essential step in the process of filing for bankruptcy.
Some cases are resolved in a few months. Many others drag out for five years or longer. There are certain deadlines along the way. As noted earlier, the person or entity filing for Chapter 11 has four months to propose a reorganization plan, though that can be extended up to 18 months.