How Chapter 7 and Chapter 11 Bankruptcy Differ

With more than 20 years of experience, attorney Christopher Carson, a graduate of Marquette University Law School, founded the Carson Law Office in the Milwaukee, Wisconsin area. As an attorney, Christopher Carson has helped individuals throughout the state of Wisconsin with a variety of legal matters, including bankruptcy.

United States citizens are typically eligible for two forms of bankruptcy filing, Chapter 7 and Chapter 13, while businesses and individuals with a high net worth may file for Chapter 11. The first two options, however, differ in a few important ways.

On a basic level, Chapter 7 bankruptcy involves liquidation, whereas Chapter 13 is based on a reorganization process. Individuals who file for the former liquidate their assets to cover their debts. In this case, people have the option of deciding to what dollar amount they wish to do so.

Alternately, filing for Chapter 13 results in establishing a payment plan, usually spanning three or five years. Depending on the nature of the debt, sometimes this reorganization is the only option available to an individual, but some people choose this method to protect against liquidation.