Types of Bankruptcies in Pennsylvania and New Jersey
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Types of Bankruptcy in PA and NJ
Most people are already familiar with phrases like “filing for bankruptcy” or “declaring bankruptcy.” What fewer people realize is that there are different categories of bankruptcy, which are known as bankruptcy “chapters.”
Before you file bankruptcy in Pennsylvania, it’s important to make the right decision about which chapter of bankruptcy is best for your situation. There are major differences between each chapter of bankruptcy, which can have both short-term and long-term impacts on your case.
The chapter you choose will affect the debts you can erase, how long your case will last, the forms you must complete, and other critical factors in your case.
This short informational guide will help you understand the key differences between Chapter 7 and Chapter 13, which are the most common types of bankruptcy used by Pennsylvania residents. Continue reading to learn more about which chapter of bankruptcy is right for you.
Then, contact the Philadelphia bankruptcy lawyers of Sadek Bankruptcy Law Offices, LLC at (215)-545-0008 for a free bankruptcy consultation.
What Is the Bankruptcy Process?
The bankruptcy process provides legal relief for individuals or businesses unable to meet their personal finance obligations. Governed by federal law in the U.S., it aims to give debtors a fresh start while ensuring fair treatment of creditors.
Filing a Petition: The process starts with the debtor filing a petition in bankruptcy court, along with detailed financial information. This can be voluntary or involuntary (filed by creditors).
Automatic Stay: Filing initiates an automatic stay, halting most collection activities against the debtor, including lawsuits and wage garnishments, offering temporary relief.
Trustee Appointment: A trustee is appointed to oversee the case. In Chapter 7 bankruptcy in PA, the trustee liquidates non-exempt assets to pay creditors. In Chapter 13, the court-appointed trustee helps create a repayment plan for the debtor to pay off debts over three to five years.
Meeting of Creditors: A 341 meeting is held where the debtor answers questions from the trustee and creditors about their finances.
Plan Confirmation or Asset Liquidation: In Chapter 7, the trustee liquidates non-exempt assets and distributes the proceeds to creditors. In Chapter 13, the court confirms the repayment plan detailing how the debtor will pay creditors.
Discharge of Debts: After successful completion, the court issues a discharge, releasing the debtor from personal liability for most debts. This occurs a few months after filing in Chapter 7 or after completing the repayment plan in Chapter 13.
This structured process helps debtors manage overwhelming financial difficulties and ensures fair asset distribution among creditors.
How Many Types of Bankruptcy Are There Under the Bankruptcy Code?
Under the U.S. Bankruptcy Code, there are six primary types of bankruptcy, each designated by a different chapter of the Code. These types of bankruptcy filings are as follows.
- Chapter 7 Bankruptcy
- Chapter 9 Bankruptcy
- Chapter 11 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 13 Bankruptcy
- Chapter 15 Bankruptcy
Which Bankruptcy Chapter Is Right for My Situation?
When determining which bankruptcy chapter is best for your financial situation, there are several factors you should consider.
The type and extent of your debts and assets play a crucial role. If you have significant non-exempt assets you wish to protect, Chapter 13 might be more appropriate as it allows you to keep your property while repaying debts over time. In contrast, Chapter 7 is suitable for those with limited assets and overwhelming unsecured debts, as it involves liquidation of non-exempt assets to discharge eligible debts quickly. Speak with your attorney about your secured debt and unsecured debt to determine which chapter would work best for you.
Your current income and future earning potential are also critical. Chapter 7 requires passing a means test to qualify, which compares your income to the median income for your state. If your income is too high, Chapter 13 might be the only option, allowing you to repay creditors over a three to five-year period based on your income. Having too much disposable income could limit your bankruptcy options.
The best way to understand which bankruptcy chapter is best for you is to speak with a dedicated Philadelphia bankruptcy lawyer.
3 Types of Bankruptcies in PA and NJ That Are Most Common for Consumers
Depending on your needs as a consumer struggling with debt, you have a few potential options for filing bankruptcy. The two most common options are Chapter 7, a liquidation bankruptcy, and Chapter 13, a repayment plan. We’ll go over these bankruptcy basics in the following sections.
Chapter 7 vs. 11 vs. 13 Bankruptcy
The different types of bankruptcy are called “chapters” because they are named after various chapters of the U.S. Bankruptcy Code. While there are many chapters of bankruptcy in Pennsylvania, most people choose to file using one of the following options:
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy involves the sale of a debtor’s non-exempt assets by a trustee to pay off creditors, with most remaining eligible debts being discharged. It also goes by the following names.
- Straight Bankruptcy
- Ordinary Bankruptcy
- Liquidation
Chapter 13 Bankruptcy
Chapter 13 bankruptcy enables individuals with regular income to restructure their debts and pay them off over three to five years under a court-approved repayment plan. It also goes by the following names.
- Wage Earner’s Plan
- Reorganization Bankruptcy
Chapter 11 Bankruptcy
Chapter 11 bankruptcy allows businesses and individuals to reorganize their debts and business assets, proposing a plan to creditors to keep the business operational and pay creditors over time.
- Straight Bankruptcy
- Ordinary Bankruptcy
- Liquidation
Chapter 7 and Chapter 13 Similarities and Differences
Chapter 7 and Chapter 13 have several features in common, but also have significant differences.
Factors they share are that both chapters can:
- Offer a fresh start and relief from debt
- Provide relief from the automatic stay
- Offer solutions for both businesses and individuals
- Satisfy your existing debts through liquidation or repayment
- Stop repossession of your vehicle
- Stop foreclosure on your home
- Prevent creditor harassment and phone calls
- Eliminate your medical debt
- Protect certain assets through applicable exemptions
These are just a few of the many benefits of bankruptcy that both Chapter 7 and Chapter 13 bankruptcy offer. To learn more about how each chapter can help you, don’t hesitate to reach out to our team. We are always happy to help, and no question is too small.
While both chapters can alleviate financial problems by erasing or restructuring debt, they differ in terms of the procedures and regulations that apply. Major differences between Chapter 7 and Chapter 13 include the following:
Chapter 13 takes longer to complete. Chapter 7 cases typically conclude in as little as six months, while Chapter 13 requires a period of three or five years to complete, depending on the circumstances.
Both chapters allow you to reduce or erase (“discharge”) many debts. However, you can discharge a few additional debts in Chapter 13 that cannot be discharged in Chapter 7.
In Chapter 7, a court-appointed bankruptcy trustee may liquidate (sell) your property to repay your creditors, unless the property is protected by bankruptcy exemptions.
There are many situations where either (1) exemptions protect most or all property, or (2) the trustee declines to sell the property because the property’s value is negligible.
In Chapter 13, you keep all of your property, but are required to make monthly payments to the trustee, who then divides the money amongst your creditors in order of importance.
Both chapters can temporarily postpone foreclosure due to the automatic stay. However, only Chapter 13 can prevent foreclosure, because unlike Chapter 7, Chapter 13 gives you time to catch up on missed mortgage payments.
There is a $335 filing fee to declare Chapter 7 in Pennsylvania. The Chapter 13 filing fee is slightly lower at $310.
If you have too much income, you might be prevented from filing Chapter 7.
Chapter 11 is also relatively common, though used less frequently than Chapter 7 or Chapter 13. Chapter 11 is primarily designed for businesses, and is usually utilized by large franchises and corporations due to the complexity of the process, which can be burdensome for smaller or fledgling companies.
In exceedingly rare cases, Chapter 11 is used by individuals who have too much debt to file Chapter 13, but also too much income to file Chapter 7. Continue reading below to learn more about business bankruptcy for C corporations, S corporations, partnerships, limited liability companies (LLCs), and sole proprietorships in Pennsylvania.
Philadelphia Bankruptcy Lawyers Can Help Eliminate Debt
If you need help managing debt that has grown financially overwhelming, bankruptcy could be the solution. Bankruptcy allows you to shrink or eliminate numerous debts, while the automatic stay gives you time and space to create a viable plan for dealing with your future obligations.
Whether you want to file on your own, with your spouse, or as a business owner, bankruptcy can help you get your debts under control so that you can escape financial hardship and gain a clean slate.
Sadek Bankruptcy Law Offices, LLC handles bankruptcy cases in Philadelphia, Bucks County, Montgomery County, and Delaware County, including Ardmore, Bristol, Broomall, Chester, Croydon, Drexel Hill, King of Prussia, Lansdale, Levittown, Morrisville, Norristown, Pottstown, Quakertown, Willow Grove, Yeadon, and many other communities in the Southeastern Pennsylvania area.
To learn more about the benefits of filing for Chapter 7 or Chapter 13 bankruptcy in Pennsylvania, call the Philadelphia bankruptcy attorneys of Sadek Bankruptcy Law Offices, LLC at (215)-545-0008 for a free legal consultation. We will keep your information confidential.
Types of Bankruptcies for Businesses in Pennsylvania & New Jersey
“Personal bankruptcy” or “consumer bankruptcy” refers to bankruptcy for individuals and married couples. As the name implies, “business bankruptcy” is bankruptcy for business entities.
Depending on what type of business you operate, how much debt the business has incurred, and what your goals for the business are, it may be appropriate to file Chapter 7, Chapter 11, or, if you are a sole proprietor, Chapter 13.
Chapter 7 for Businesses
If your business is structured as a corporation, partnership, LLC, or sole proprietorship, you may file a Chapter 7 business bankruptcy. Chapter 7 allows you to eliminate many of your business debts, but will also result in liquidation, and ultimately, closure of the business.
Chapter 11 for Businesses
If you wish to keep the business open during and after the bankruptcy, you will need to file Chapter 11, which involves long-term debt restructuring as opposed to liquidation in Chapter 7.
Chapter 13 for Businesses
Similar to Chapter 11, Chapter 13 allows businesses to continue operating while their cases are pending. However, Chapter 13 is unfortunately not a filing option for most business entities. The only type of business that may file Chapter 13 is a sole proprietorship, in which case the sole proprietor keeps the company’s assets while paying off debts gradually.
If you are a small business owner in Philadelphia or other areas of Pennsylvania, Chapter 13 might be the right bankruptcy option for you. Our bankruptcy lawyers in Philadelphia can help you make an informed decision about your company’s financial future.
Chapter 12 for Businesses
Chapter 12 bankruptcy is specifically designed for family farmers and fishermen, enabling them to restructure and manage their debts to maintain operation. It is similar to Chapter 13 but provides more favorable terms and flexibility to address the unique challenges and seasonal cash flows of farming and fishing operations.
This chapter allows these businesses to declare bankruptcy, then propose a plan to repay creditors over three to five years while continuing their operations. This makes it a viable option for agricultural and fishing enterprises facing financial distress.
Less Common Types of Bankruptcy in Pennsylvania and New Jersey
In general, the average bankruptcy case would be a Chapter 7 or Chapter 13 filing. In some cases, Chapter 11 is a better option. For very specific cases, other rarer bankruptcy chapters are preferable. The rarest types of bankruptcy are Chapter 9, Chapter 12, and Chapter 15. We’ll outline these types of bankruptcy below.
Chapter 9 Bankruptcy
Chapter 9 bankruptcy is a form of reorganization specifically designed for municipalities, such as cities, towns, villages, and public entities like school districts. It allows these governmental entities to restructure their debts while continuing to operate and provide essential services.
This chapter ensures that such entities can negotiate with creditors to adjust the terms of their debts, often reducing interest rates or extending repayment terms, without having to liquidate assets or cease operations. This helps ensure public services remain uninterrupted while addressing financial challenges.
Chapter 12 Bankruptcy
As we mentioned earlier, Chapter 12 bankruptcy allows family farmers and fishermen to achieve debt relief under the Bankruptcy Code. This chapter is specifically tailored to their unique financial and operational challenges, such as seasonal income fluctuations and dependency on environmental factors.
The terms of Chapter 12 bankruptcy are often more flexible, allowing debtors to devise a payment plan based on their seasonal income patterns. Additionally, Chapter 12 allows for potentially higher debt ceilings and less stringent eligibility criteria compared to Chapter 13, which is critical given the often substantial operational costs associated with farming and fishing. This specialized form of bankruptcy helps ensure that farmers and fishermen can restructure their debts effectively while continuing their livelihoods.
Chapter 15 Bankruptcy
Federal bankruptcy laws even have solutions for cases involving parties spread across multiple countries. Chapter 15 bankruptcy facilitates cooperation between U.S. courts and their foreign counterparts, and is intended to protect the interests of all parties involved while ensuring the fair and efficient administration of cross-border insolvencies. It allows foreign debtors to access U.S. bankruptcy courts in order to manage their U.S.-based assets and liabilities in conjunction with proceedings in their home countries.
Why Choose Sadek Law for Your Personal or Business Bankruptcy?
At Sadek Bankruptcy Law Offices, we do more than just help you file for bankruptcy. We help you understand and improve your credit report, choose the right chapter of bankruptcy to file, guide you through the filing process, and explain how to achieve financial independence. Our dedicated team of attorneys are well equipped to help you seek relief from crushing debt through bankruptcy.
Highly Knowledgeable About Bankruptcy Laws
If you are unsure of whether your debts qualify for bankruptcy or if you are unsure of which chapter is right for you, our attorneys are here for you. We will carefully evaluate your unique situation and help you craft a course of action that works best for you. With our decades of experience in bankruptcy law, you can rest assured that we will work hard to ensure your case proceeds as smoothly as possible.
Strong Representation in Bankruptcy Court
We understand that appearing in the United States courts can feel intimidating, but our attorneys are here to help. We are known for our strong client representation in bankruptcy court. Our team is committed to advocating vigorously on your behalf, ensuring that your rights are protected throughout the process. We focus on minimizing stress and maximizing outcomes by handling negotiations and court proceedings with the utmost professionalism and competence.
Contact a Pennsylvania and New Jersey Bankruptcy Attorney at Sadek Law
At Sadek Law, we understand that choosing the right type of bankruptcy is a critical decision that impacts your financial future. Our experienced attorneys are here to guide you through the nuances of Pennsylvania and New Jersey bankruptcy laws, ensuring you choose the path that best suits your unique situation. Whether you’re considering Chapter 7, Chapter 11, or Chapter 13, we are dedicated to providing you with knowledgeable and compassionate legal representation. Contact us today to schedule a consultation and start your journey towards financial recovery with confidence.