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What's the Difference Between Chapter 7 and 11 Bankruptcy


If you think you need to file for bankruptcy, then you need to know about your options. Two types of bankruptcy that you may have heard about include Chapter 11 and Chapter 7 bankruptcy. These types of bankruptcy are not similar, and the outcome of your finances and assets could be drastically different depending on the type you choose to file for.

With Chapter 7 bankruptcy, you're filing for liquidation bankruptcy. This process allows you to sell off your assets to help you get out of debt. Certain assets may be exempt from the liquidation process, but anything that isn't may be sold to pay back your creditors.

During the Chapter 7 bankruptcy process, you work with a trustee. This trustee ensures your assets are sold and that your creditors receive the money they are entitled to. Secured debts are always paid for first, and then the remaining assets you have are used to pay off your outstanding debts to unsecured lenders.

Chapter 7 bankruptcy differs from Chapter 11 bankruptcy, because Chapter 11 bankruptcy allows you to reorganize your debt and to try to emerge from bankruptcy in good shape financially. This process is usually only used by businesses, since they are able to stay open, bring in an income and reorganize their debts and income to become more successful. As a company reorganizes its debts, it may try to get payments lowered, terms changed, or even to consolidate debt for a reduced fee. No liquidation takes place during this process; instead, the debts are reorganized so the business can start to pay the creditors on time.

Source: Investopedia, "What are the differences between chapter 7 and chapter 11 bankruptcy?" accessed Feb. 18, 2015