Which Chapter of Bankruptcy
Should I Choose?
Feb. 8, 2022
If you are thinking about filing for bankruptcy, you should have some understanding of which chapter of bankruptcy is best for your particular situation. To do so, you should have a basic understanding of the eligibility requirements for each chapter, what each chapter can and cannot do, and seek legal counsel from an experienced bankruptcy attorney.
As a skilled bankruptcy attorney at Oregon Fresh Start, I have helped clients through my Bend, Oregon & Hermiston, Oregon offices, decide which chapter of bankruptcy would be the best for them in their financial situation. In many cases, the debtor’s income, assets, and total amount of debt will determine the bankruptcy chapter they should file. However, sometimes you need to consider the bigger picture because filing for bankruptcy is a huge step in your life. I proudly serve clients in Portland and Eugene, Oregon as well.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common chapter of bankruptcy in the United States. This chapter allows debtors to discharge almost all of their debts.
Who Qualifies for Chapter 7 Bankruptcy?
Not everyone qualifies for Chapter 7 bankruptcy. The eligibility requirements include:
Complete a credit counseling course from a credit counseling agency approved by the government no more than 180 days before filing;
Pass a "means" test, which shows that your disposable income is insufficient to make payments to unsecured creditors, or prove that the average of your current monthly income over the past six months does not exceed the median income for a similar household in Oregon; and
You have not received a discharge for Chapter 7 bankruptcy in the past eight years or Chapter 13 bankruptcy in the past six years.
Chapter 7: What It Can and Cannot Do
Once you file for Chapter 7 bankruptcy, the court will place an automatic stay on all creditors trying to collect your debts, stopping most collection actions against you and your property. Filing for Chapter 7 bankruptcy can also stop a foreclosure, repossession, or eviction.
When a debtor files under Chapter 7, they no longer have an obligation to make payments on the debts that were discharged. However, certain debts cannot be discharged under Chapter 7 bankruptcy. These include debts related to child support or alimony payments, criminal fines, taxes, student loans, fraud-related debts, and some others.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows debtors with regular income to reorganize their finances to make installments to creditors within the next three to five years. Completing the repayment plan allows the debtor to keep their property, including secured assets.
Who Qualifies for Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is available for individuals and spouses if filing jointly. Businesses are not eligible for Chapter 13 and must instead file under Chapter 11. Other eligibility requirements for Chapter 13 bankruptcy include:
You cannot file under Chapter 13 if you are an individual debtor who has more than $419,275 in secured debt and over $1,257,850 in secured debt;
You must prove that you have sufficient income to meet your obligations under the repayment plan;
You have not filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years;
You have completed a credit counseling course from a credit counseling agency approved by the government no more than 180 days before filing; and
You must demonstrate proof of filing federal and state income tax returns for the past four years if you were required to file.
Chapter 13: What It Can and Cannot Do
One of the advantages of Chapter 13 is that it offers debtors an opportunity to save their homes from foreclosure. Once you file for Chapter 13 bankruptcy, you can stop foreclosure proceedings and keep the property you make payments on.
Filing under Chapter 13 also allows you to reschedule your secured debts and extend them over the term of the repayment plan. However, under Chapter 13 bankruptcy, it could take up to five years to repay your debts.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a reorganization of a business. Under this chapter, debtors can restructure their business debts, assets, and affairs to develop a plan to repay the creditors. Chapter 11 bankruptcy is a good option for business owners who want to keep operating their business but need some time to pay back the creditors.
Who Qualifies for Chapter 11 Bankruptcy?
While there are no financial or insolvency requirements to file under Chapter 11, the debtor must present their reorganization plan in good faith. It means that the debtor cannot file for Chapter 11 bankruptcy for any purpose other than the reorganization of their finances. You can file for Chapter 11 bankruptcy regardless of whether (a) your business is solvent or insolvent and (b) your business has substantial or no regular income.
Chapter 11: What It Can and Cannot Do
Once a debtor files for Chapter 11 bankruptcy, creditors cannot take collection actions against the business. A business owner must propose a reorganization plan within four months after filing for bankruptcy. However, the deadline can be extended to 18 months in some cases. The plan will show how the business will repay its debt. If the Chapter 11 bankruptcy case does not qualify as a small business case, the creditors will vote to approve or reject the plan.
Unlike other chapters of bankruptcy, Chapter 11 bankruptcy does not require the appointment of a bankruptcy trustee to be in charge of the business and its property.
Hiring an Experienced Bankruptcy Attorney
As an experienced bankruptcy attorney serving clients in Bend & Hermiston, Oregon, I help clients decide if they should file for bankruptcy under Chapter 7, 13, or 11. At Oregon Fresh Start, I also represent debtors in Portland and Eugene. I am prepared to assess your financial situation and review your unique circumstances to help you choose the right chapter of bankruptcy. Get a case evaluation by reaching out to my office