What do Chapter 7, Chapter 11, and Chapter 13 mean?

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Chapter 7

Chapter 7 is the liquidation chapter of the U.S. Bankruptcy Code where a person or business entity may be relieved (or discharged) from most debts without a continuing obligation of a repayment plan.  During a Chapter 7, a trustee is appointed to review the debtor’s petition and determine if any property must be collected and sold (non-exempt property) thereby using any proceeds to pay creditors.  In an individual bankruptcy, debtors are permitted to claim certain property exempt.  Please see the state of Maine’s information on exemptions.

In exchange for a full liquidation of non-exempt property, the debtor receives a discharge of all debts that are dischargeable.

Business entities do not receive discharges in a Chapter 7 bankruptcy and therefore any individuals liable for the entity’s debts will continue to remain liable post-bankruptcy.  As a result, individual bankruptcies may sometimes be necessary along with the entity bankruptcy.

Chapter 11

Chapter 11 is the reorganization chapter which is available to business entities and individuals with substantial assets/income allowing for them to restructure and repay their debts.  In a Chapter 11 bankruptcy, creditors will accept or reject a reorganization plan and then that plan is subject to court approval.

Chapter 13

A Chapter 13 bankruptcy is where individuals with regular income will submit for court and creditor approval a repayment plan.  Repayment plans must be a minimum length of 36 months and a maximum length of 60 months.  Chapter 13 bankruptcies allow for individuals to keep property that does not fall within an applicable exemption by repaying creditors out of income during the plan period. A Chapter 13 trustee is appointed to manage and distribute the funds paid into the plan.  Following completion of the plan period, Chapter 13 debtors will receive a discharge of most of their debts.

There are certain debts that are not dischargeable, regardless of chapter, for example: domestic support obligations, student loans, and state or federal tax obligations.

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