As a Sacramento Bankruptcy Attorney I get asked a lot of questions in regards to the differences between the various chapters of bankruptcy.

I am going to try and use the blog to illuminate them a bit. Chapter 13 and Chapter 11 are used by individuals and businesses to reorganize and restructure debt, whereas Chapter 7 is a liquidation of assets and debt discharge. In a nutshell, only Chapter 7 bankruptcy provides a complete clean slate. There are some exceptions regarding what cannot be discharged (tax debts within three years, fines accrued through drunk driving, and child support) but old IRS debts can be discharged, as well as, student loans if it can be proved that payment to them would create undue hardship and suffering. We Sacramento lawyers these days see a lot of Chapter 7 cases due to the housing market and tend to recommend Chapter 7 when the mortgage is so underwater and the house cannot be sold that it makes more sense to walk away from it. Chapter 13 and Chapter 11 are used to restructure the debt owed by an individual or company, with intent to repay that debt over the course of 3-5 years. It is a good way to force creditors to the table to be reasonable.

As a Sacramento bankruptcy attorney I used the threat of Chapter 7 to get creditors to back off and accept better debt settlement or Chapter 13 terms.

They know that with Chapter 7 they will get far less than with Chapter 13 or debt settlement outside of court. Chapter 11 is used predominantly by businesses that have a reorganization plan and multi-year plan to emerge from bankruptcy as a profitable business once more. What many people don’t know is that individuals can use this model of bankruptcy, too. If your debts exceed what Chapter 13 allows, you can file under Chapter 11. I have as a Sacramento lawyer done this quite a few times, and although it is more complicated it is still an available option for clients.