Chapter 7 bankruptcy, also known as liquidation bankruptcy, is designed for individuals and businesses with limited assets and income who are unable to repay their debts. Under Chapter 7, a trustee is appointed to liquidate the debtor’s non-exempt assets and distribute the proceeds to creditors. Most unsecured debts, such as credit card debt and medical bills, are discharged in a Chapter 7 bankruptcy, which means the debtor is no longer responsible for paying them.
Chapter 11 bankruptcy, on the other hand, is a type of reorganization bankruptcy primarily intended for businesses but can be used by individuals as well. It allows the debtor to restructure their debts and operations under court supervision while continuing to operate their business. This allows the debtor to continue earning income and paying creditors over time, rather than having to liquidate assets immediately. Chapter 11 is a more complex and expensive process than Chapter 7, and it requires the debtor to submit a reorganization plan to the court for approval.
In summary, Chapter 7 bankruptcy is for individuals and businesses who need to liquidate assets to repay creditors, while Chapter 11 bankruptcy is for businesses and individuals who want to reorganize their debts and operations under court supervision while continuing to operate their business.
