Bankruptcy Overview: Chapters 7, 11, and 13 Explained


Chapter 7

In a Chapter 7 case, the appointed Chapter 7 trustee will look at these main areas:

Assets

The trustee will want to know if you have any property that is not protected by the exemptions or subject to a security interest. If you have "excess" property then the trustee will want to sell or liquidate the property and then distribute the proceeds amongst your creditors.

Secured Creditors

The trustee and the secured creditors will want to know how you plan to treat these debts. You will have the following choices:

  • A. Surrender the property to the creditor.
  • B. Agree to repay the debt by entering into new payment terms with the creditor, called a reaffirmation agreement.
  • C. Agree to repay the debt by making one lump-sum payment to the creditor.

Abuse

The trustee will want to know if you have sufficient income to enable you to commit to a repayment plan. A means test will be applied to determine if sufficient income is available to justify the filing of a Chapter 13 case. The test is based on the median income for a like sized household in South Carolina as well as certain standard deductions based on the location of your household.

Dischargeability

Certain debts will be excepted from discharge in a Chapter 7 case. For example, if you have a student loan debt, you will have to make arrangements to repay that debt. In addition, certain tax debts will survive the discharge that is granted in a Chapter 7 case. Further, alimony or child support debts will also be excepted from discharge. Finally, any debts that arose as a result of fraudulent conduct or willful/malicious conduct may be excepted from discharge. A creditor must prove that you acted improperly to prevent the discharge of a debt.


Reorganization Plans

Chapter 13

Chapter 11

  • Feasibility
  • Liquidation
  • Good Faith
  • Individuals Only
  • Debt Limits
  • Creditors Object to Plan
  • Trustee Appointed



  • Feasibility
  • Liquidation
  • Good Faith
  • Individuals and Businesses
  • No Debt Limits
  • Creditors Vote to Accept Plan
  • No Trustee Appointed Unless Wrongdoing Alleged

Feasibility

Ensures that you have a reasonable basis for believing that you can make the required payments under the plan of reorganization that you are proposing.

Liquidation Test

Ensures that your creditors will receive as much from your reorganization plan as they would have received in a Chapter 7 liquidation. A liquidation analysis will identify what type of bankruptcy case you should file, then the liquidation analysis will identify how much money must be paid to your creditors through your plan.

Good Faith

Ensures that you do not have improper motives in filing a bankruptcy case. This area is difficult to summarize because of the nature of bankruptcy - no creditor believes that any debtor needs to reorganize.

Means Test

A means test will be applied to determine the commitment period for the Chapter 13 Plan.


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