Types of Bankruptcy
Most people are already familiar with phrases like “filing for bankruptcy” or “declaring bankruptcy.” What fewer people realize is that there are different categories of bankruptcy, which are known as bankruptcy “chapters.”
Before you file bankruptcy in Pennsylvania, it’s important to make the right decision about which chapter of bankruptcy is best for your situation. There are major differences between each chapter of bankruptcy, which can have both short-term and long-term impacts on your case. The chapter you choose will affect the debts you can erase, how long your case will last, the forms you must complete, and other critical factors in your case.
This short informational guide will help you understand the key differences between Chapter 7 and Chapter 13, which are the most common types of bankruptcy used by Pennsylvania residents. Continue reading to learn more about which chapter of bankruptcy is right for you. Then, contact the Philadelphia bankruptcy lawyers of Sadek and Cooper Law Offices, LLC at (215) 995-2543 for a free bankruptcy consultation.
Chapter 7 vs. 11 vs. 13 Bankruptcy
The different types of bankruptcy are called “chapters” because they are named after various chapters of the U.S. Bankruptcy Code. While there are many chapters of bankruptcy in Pennsylvania, most people choose to file using one of the following options:
- Chapter 7 Bankruptcy (Straight Bankruptcy, Ordinary Bankruptcy, Liquidation)
- Chapter 13 Bankruptcy (Wage Earner’s Plan, Reorganization Bankruptcy)
Chapter 7 and Chapter 13 have several features in common, but also have significant differences. Factors they share are that both chapters can:
- Help you eliminate or reduce many of your debts, including medical debt, credit card debt, business debt, and debt from personal loans.
- Provide temporary, automatic protection from debt collectors, repossession, and foreclosure through a bankruptcy feature called the “automatic stay.”
- Give you the ability to build better credit in the future by relieving most of your debts.
While both chapters can alleviate financial problems by erasing or restructuring debt, they differ in terms of the procedures and regulations that apply. Major differences between Chapter 7 and Chapter 13 include the following:
- Chapter 13 takes longer to complete. Chapter 7 cases typically conclude in as little as six months, while Chapter 13 requires a period of three or five years to complete, depending on the circumstances.
- In Chapter 7, a court-appointed bankruptcy trustee may liquidate (sell) your property to repay your creditors, unless the property is protected by bankruptcy exemptions. There are many situations where either (1) exemptions protect most or all property, or (2) the trustee declines to sell the property because the property’s value is negligible. In Chapter 13, you keep all of your property, but are required to make monthly payments to the trustee, who then divides the money amongst your creditors in order of importance.
- Both chapters allow you to reduce or erase (“discharge”) many debts. However, you can discharge a few additional debts in Chapter 13 that cannot be discharged in Chapter 7.
- Both chapters can temporarily postpone foreclosure due to the automatic stay. However, only Chapter 13 can prevent foreclosure, because unlike Chapter 7, Chapter 13 gives you time to catch up on missed mortgage payments.
- There is a $335 filing fee to declare Chapter 7 in Pennsylvania. The Chapter 13 filing fee is slightly lower at $310.
- If you have too much income, you might be prevented from filing Chapter 7.
Chapter 11 is also relatively common, though used less frequently than Chapter 7 or Chapter 13. Chapter 11 is primarily designed for businesses, and is usually utilized by large franchises and corporations due to the complexity of the process, which can be burdensome for smaller or fledgling companies. In exceedingly rare cases, Chapter 11 is used by individuals who have too much debt to file Chapter 13, but also too much income to file Chapter 7. Continue reading below to learn more about business bankruptcy for C corporations, S corporations, partnerships, limited liability companies (LLCs), and sole proprietorships in Pennsylvania.
Types of Bankruptcies for Businesses in Pennsylvania
“Personal bankruptcy” or “consumer bankruptcy” refers to bankruptcy for individuals and married couples. As the name implies, “business bankruptcy” is bankruptcy for business entities. Depending on what type of business you operate, how much debt the business has incurred, and what your goals for the business are, it may be appropriate to file Chapter 7, Chapter 11, or, if you are a sole proprietor, Chapter 13.
If your business is structured as a corporation, partnership, LLC, or sole proprietorship, you may file Chapter 7. Chapter 7 allows you to eliminate many of your business debts, but will also result in liquidation, and ultimately, closure of the business. If you wish to keep the business open during and after the bankruptcy, you will need to file Chapter 11, which involves long-term debt restructuring as opposed to liquidation in Chapter 7.
Similar to Chapter 11, Chapter 13 allows businesses to continue operating while their cases are pending. However, Chapter 13 is unfortunately not a filing option for most business entities. The only type of business that may file Chapter 13 is a sole proprietorship, in which case the sole proprietor keeps the company’s assets while paying off debts gradually. If you are a small business owner in Philadelphia or other areas of Pennsylvania, Chapter 13 might be the right bankruptcy option for you. Our bankruptcy lawyers in Philadelphia can help you make an informed decision about your company’s financial future.
Philadelphia Bankruptcy Lawyers Can Help Eliminate Debt
If you need help managing debt that has grown financially overwhelming, bankruptcy could be the solution. Bankruptcy allows you to shrink or eliminate numerous debts, while the automatic stay gives you time and space to create a viable plan for dealing with your future obligations. Whether you want to file on your own, with your spouse, or as a business owner, bankruptcy can help you get your debts under control so that you can escape financial hardship and gain a clean slate.
Sadek and Cooper Law Offices, LLC handles bankruptcy cases in Philadelphia, Bucks County, Montgomery County, and Delaware County, including Ardmore, Bristol, Broomall, Chester, Croydon, Drexel Hill, King of Prussia, Lansdale, Levittown, Morrisville, Norristown, Pottstown, Quakertown, Willow Grove, Yeadon, and many other communities in the Southeastern Pennsylvania area.
To learn more about the benefits of filing for Chapter 7 or Chapter 13 bankruptcy in Pennsylvania, call the Philadelphia bankruptcy attorneys of Sadek and Cooper Law Offices, LLC at (215) 995-2543 for a free legal consultation. We will keep your information confidential.