Chapter 7
A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 Trustee. A Chapter 7 Trustee is appointed almost immediately, with broad powers to examine the business's financial affairs. The trustee generally sells all the assets and distributes the proceeds to the creditors. In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however such as real estate mortgages and security interests for car loans survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student loans unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the discharge ability of the student loan, and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is also not covered by a bankruptcy filing or are property settlements through divorce. All debts must be listed on bankruptcy schedules. A chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the chapter 7 petition.
Chapter 11
Usually is used by commercial enterprises that desire to continue operating a business and repay creditors through a court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan. The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and rescale its operations in order to return to profitability. Under chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized