What Is the Difference Between Chapter 7 and Chapter 11 Bankruptcy in Massachusetts?

What Is the Difference Between Chapter 7 and Chapter 11 Bankruptcy in Massachusetts?

When facing financial difficulties, individuals and businesses in Massachusetts may consider filing for bankruptcy. Two common options are Chapter 7 and Chapter 11 bankruptcy. Understanding the differences between these two types can help determine the best course of action for one’s financial situation.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, is designed for individuals and businesses looking to eliminate most unsecured debts. This includes credit card debts, medical bills, and personal loans. In Massachusetts, the process typically takes about three to six months.

Here are key features of Chapter 7 bankruptcy:

  • Eligibility: Individuals must pass a means test that compares their income to the median income for their household size in Massachusetts. If their income is below the median, they qualify for Chapter 7.
  • Asset Liquidation: A bankruptcy trustee is appointed to review assets. While some assets may be liquidated to repay creditors, Massachusetts has exemptions that allow individuals to keep certain properties, such as a primary residence, vehicle, and basic personal belongings.
  • Debt Discharge: Most unsecured debts are discharged, meaning the debtor is no longer legally required to pay them. However, certain debts, like student loans, child support, and some taxes, typically cannot be discharged.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is primarily used by businesses, but individuals with significant debts may also file. It allows for reorganization of debts rather than outright liquidation. This type of bankruptcy gives debtors a chance to restructure their finances while continuing operations.

Key characteristics of Chapter 11 bankruptcy include:

  • Reorganization of Debts: Under Chapter 11, debtors propose a plan of reorganization to reduce debt and adjust payment terms. This plan must be approved by the court and creditors.
  • Operation Continuity: Businesses can continue their operations while repaying creditors according to the approved plan, which helps maintain value and customer relationships.
  • Complex Process: The process can be lengthy and complex, often lasting several months to years. Legal and administrative costs can also be significant.

Choosing Between Chapter 7 and Chapter 11

The choice between Chapter 7 and Chapter 11 bankruptcy in Massachusetts largely depends on individual circumstances:

  • If an individual or business seeks a quick discharge of unsecured debts and does not have significant non-exempt assets, Chapter 7 may be more suitable.
  • If a business wishes to remain operational and restructure debt to become financially viable again, Chapter 11 is typically the better option.
  • If a person has a high income or substantial assets they wish to protect, Chapter 11 may allow them to reorganize their obligations while keeping their property.

Conclusion

In summary, Chapter 7 and Chapter 11 bankruptcy serve different purposes and come with distinct processes and implications. It’s essential to consult with a bankruptcy attorney in Massachusetts to fully understand which option aligns best with your financial goals. Each case is unique, and professional guidance can make a significant difference in navigating bankruptcy effectively.