Chapter 7, sometimes called “straight bankruptcy,” is a liquidation proceeding in which a trustee is appointed to liquidate all of a debtor’s non-exempt assets for payment to creditors in accordance with the priorities set out in the Bankruptcy Code. Individuals and corporations are eligible for Chapter 7 bankruptcy, but corporations are not entitled to receive a discharge of indebtedness.

Chapter 13, sometimes called a “wage earner bankruptcy,” is a proceeding in which an individual proposes a plan to repay creditors over a three to five year period. This allows debtors to “catch up” on missed payments to secured creditors, provided they can also make timely current payments.

Chapter 11, sometimes called a “business reorganization,” is a proceeding where an individual or a corporation has the opportunity to restructure debts by proposing a plan to repay creditors all or a portion of their claims. Even though Chapter 11 was designed to foster reorganizations, a growing trend is for businesses to use Chapter 11 to control the process of liquidation of its assets without the need for a Chapter 7 trustee. Among other things, this Chapter allows current management and ownership to guide the liquidation of the business without significant outside interference, provided the business complies with the requirements of the Bankruptcy Code.