What is the difference between Chapter 7 and Chapter 11?

Chapter 7 and Chapter 11 are both forms of bankruptcy law that can affect individuals or businesses in the state of California. The key difference between the two lies in the amount and type of debt they can address. Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy” because it is used to discharge most types of unsecured debts. This includes credit card debt, medical bills, and similar financial obligations. In exchange for the debt being discharged, the debtor must surrender most or all of their assets to a court-appointed trustee. The trustee then sells the assets to pay off creditors as much as possible. Chapter 11 bankruptcy, also known as “reorganization bankruptcy,” is meant to restructure debt so that it’s more manageable for the debtor. This type of bankruptcy typically applies to larger businesses or individuals with substantial debt. Instead of surrendering their assets and having them sold off, the debtor can propose a debt repayment plan to creditors. If approved, creditors must accept these payment terms. In essence, Chapter 7 bankruptcy is a way to get out of debt quickly, while Chapter 11 is a way to better manage it over a longer period of time. However, it’s important to note that Chapter 11 is much more complex, and debtors should seek the advice of a qualified bankruptcy lawyer before filing.

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What is the difference between Chapter 7 and Chapter 11?

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