Difference Between Chapter 7 vs Chapter 11
If any business/person is thinking to file bankruptcy, this is not an easy task/decision to be made. There is a lot of complications involved, and one has to decide which chapter of bankruptcy to choose to file the bankruptcy. Chapter 7 of bankruptcy is also known as liquidation bankruptcy or straight bankruptcy. Under this chapter, the debtors can surrender assets and can quickly eliminate their unsecured debts like personal loans, etc., which have no collateral. In addition, there will be no repayment schedule under this type of bankruptcy since the asset liquidation will help in recovering the debt value. On the other hand, Chapter 11 bankruptcy, also called rehabilitation bankruptcy, allows the party filing bankruptcy to pay their debts back over time. In other words, it is a more organized approach that helps businesses to restructure their operations and emerge as a more healthy organization. here we will learn the difference between Chapter 7 vs Chapter 11.
Head To Head Comparison Between Chapter 7 vs Chapter 11 (Infographics)
Below is the top 7 difference between Chapter 7 and Chapter 11
Key differences between Chapter 7 vs Chapter 11
Chapter 7 vs chapter 11 are the bankruptcy sections that individuals or businesses can use to file the bankruptcy. Although these two chapters provide in filing bankruptcy, there are various differences which are listed below:
- Chapter 7 is the final step of any business, and if bankruptcy is filed under this section, the business operations will no longer exist. This is not the case with Chapter 11 filling, as this filling basically helps in restructuring the debt and allows businesses to continue their operations.
- The company is basically disposing of debts they have by liquidating the assets so that the creditors are paid. But, on the other hand, Chapter 11 basically keeps the hope alive that business will do come back in the future.
- The cost of filing bankruptcy under chapter 7 is relatively lower than chapter 11
- Under both the chapter, a trustee is appointed but has a different role to play. In chapter 7, the business will seize its operation, and the trustee will sell the assets to pay back the creditors. In chapter 11, the trustee will only oversee the operation of the business and debt restructuring.
- There is no need for an attorney for filing bankruptcy under chapter 7 but filling under chapter 11 is a complex process and needs a greater amount of knowledge.
Chapter 7 vs Chapter 11 Comparison Table
Let’s look at the top 7 Comparison Between Chapter 7 vs Chapter 11
|
Chapter 7 |
Chapter 11 |
| Chapter 7 is the last step of their operations for any individual or any business, and they seize to operate after filling under this section. | This section allows the party who is filing bankruptcy under this section to reorganize the bankruptcy and continue its operations. |
| The attorney cost and filing fees for this section are substantially lower than in chapter 11. | The attorney cost and filing fees for this section are substantially higher than in chapter 11. |
| In this section, creditors are not paid back by debtors, but they receive the share of the money when the assets are sold. | In this section, debtors have to have a reorganization plan in place, which basically outlines how the creditors will be paid back. |
| A trustee is appointed in this section, who can decide to operate the business for some time before closing all the operations to generate some money for the creditors. | In this section also, there is a trustee appointed, but his role is not to sell the assets but to supervise the operations, and the business will continue to operate by the owners. |
| Chapter 7 has limited forms for filing bankruptcy and is less in number than Chapter 11. | The forms in chapter 11 are more complicated than in chapter 7. |
| Chapter 7 bankruptcy can be filed without an attorney. | Chapter 11 bankruptcy filing needs the help of an attorney since it requires having more knowledge of the bankruptcy code. |
| Debt is absolved in chapter 7 filling. | Debt is not absolved but is restructured, and there is a change in terms of the debt. |
Conclusion
After discussing the above points, we can infer that both Chapter 7 vs chapter 11 are similar in the sense that both are useful sections if some individual or business wants to file bankruptcy. But they are different in the way they work. For example, if the reason for applying for bankruptcy is that the party wants to shut down its operations, then chapter 7 is useful, but if they want to continue the business operations, chapter 11 is effective.
Since in chapter 7, the businesses shut down their operations, so all of their assets are sold off and is then the proceeds will be used to pay the creditors. So that is why there is no need for the debtors to pay any money or have any repayment schedule. But in chapter 11, debtors have to have a repayment schedule that will determine how the creditors will get paid. Chapter 11 is a more complex process than chapter 7, and therefore the cost involved is also higher than chapter 7.
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In a nutshell, Chapter 7 vs Chapter 11 have their own pros and cons, and it solely depends upon the purpose or intention of filing bankruptcy, which will eventually help select which chapter to be used.
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