Saying you are thinking about filing for bankruptcy is about as descriptive as saying you are running to the store to get some cheese. While there are not as many chapters of the bankruptcy code as there are types of cheeses in Wisconsin, it is necessary to be more precise in order to find an option that fits the situation at hand.
In this blog post, we will go over the basic characteristics of the most common chapters of the bankruptcy code. But you better believe this is something you should discuss with an experienced bankruptcy attorney like those on the Hanson & Payne team.
Chapter 7, Chapter 11, and Subchapter V: These are the Best Options for Businesses
There are two different chapters of the bankruptcy code that most businesses file under — Chapter 7 and Chapter 11. Small businesses can also choose to file under Subchapter V, which is a special type of Chapter 11 bankruptcy.
A Chapter 7 bankruptcy is a clean slate bankruptcy. The business may be sold off in its entirety, or wound down as its assets are sold off piece by piece. The proceeds from whichever sale type occurs are then used to pay off creditors. Remaining debts are forgiven so the business owner can walk away and start anew.
Business owners that would like to try and keep things going instead of shutting down have the option of filing for bankruptcy under Chapter 11. The Chapter 11 process allows the business to focus on finding and exploiting its core competencies while closing up or selling off less profitable or peripheral enterprises.
While a Chapter 11 case is pending, a filer has the freedom to attempt to negotiate new contracts with creditors, landlords, and labor unions. A company may also use Chapter 11 as an opportunity to settle pending litigation if it is facing unknown liability. The fear that the business will completely shut down if negotiations are unsuccessful gives the filer some leverage and motivates everyone to make a deal.
If the Chapter 11 process is not going well, the case can be converted to a Chapter 7 case so the business can close.
A relatively new federal law, The Small Business Restructuring Act of 2019 (SBRA), which is also being referred to as Subchapter V, is a Chapter 11 process specifically for small businesses. Filing under it means working with a trustee to swiftly craft a consensual plan of reorganization. It is a good option for small business owners who don’t want to wind down their operations, but don’t have complex operations that would benefit from the full Chapter 11 treatment.
You Could Choose between Chapter 7 and Chapter 13 if you file for Personal Bankruptcy
The same Chapter 7 process that is used by businesses can also be used for personal bankruptcies. Assets that are not being held on to by the filer are sold off, the proceeds are used to pay creditors. Remaining debts that are eligible to be forgiven are discharged, and the person or family who filed can move forward.
Chapter 13 bankruptcy was created for individuals who have gotten behind on house and/or car payments, or who owe substantial tax debt, and want the opportunity to catch up on payments without giving up their assets. The court-supervised repayment process gives filers 3 to 5 years to get their financial affairs in order.
Before you file a Chapter 13 case, Hanson & Payne’s attorneys will determine the monthly amount required to be paid into your Chapter 13 plan. If the amount is affordable, we move forward. If making these payments is not possible, we will want to explore filing for Chapter 7 bankruptcy instead.
Chapter 12: Not Your Average Bankruptcy
Chapter 12 is a special chapter of the bankruptcy code that was enacted specifically so that “family farmers” and “family fishermen” can file for bankruptcy without losing all their assets and giving up their way of life.
Chapter 12 bankruptcies are like Chapter 11 or Chapter 13 bankruptcies in that the goal is to reorganize operations, and repay debts on a payment plan. However, Chapter 12 is simpler and less expensive to file under than Chapter 11, which was designed with large corporations in mind. Chapter 12 is also a lot better at dealing with the large debts and less predictable income that characterize family farming and fishing operations than Chapter 13 is.
Hanson & Payne is a Full-Service Bankruptcy Firm
Hanson & Payne is a full-service Milwaukee bankruptcy law firm. Whether you need to file for personal bankruptcy or business bankruptcy, our experienced team of attorneys can help you chart a path forward that will put you back on firm financial footing. Call today for a free consultation with one of our attorneys.