What is the difference between liquidation and reorganization in Chapter 7 Bankruptcy?

The two options for filing for Chapter 7 Bankruptcy in Washington are liquidation and reorganization. Liquidation involves the debtor selling off their assets and using the money gained to pay back creditors. This allows debtors to get rid of most or all of their debt and get relief from creditors. Reorganization, on the other hand, involves debtors restructuring their finances and working with creditors to create a repayment plan. A repayment plan may involve allowing debtors to make reduced payments and extending the repayment period. Liquidation is an attractive option for debtors who do not find reorganization to be a viable option, as it completely wipes out their debt with little effort. However, not all debtors are eligible for liquidation. In Washington, to qualify for liquidation, debtors must pass a means test to prove they cannot pay back their debt and must not have filed for Chapter 7 Bankruptcy in the previous eight years. Reorganization, on the other hand, is a good option for debtors who are able to make reduced payments. This option allows debtors to keep control of their assets and their finances, while still getting the debt relief they need. Moreover, debtors are still protected from creditors, as the court oversees the repayment plan and creditors cannot demand more than what is agreed upon. Overall, the differences between liquidation and reorganization in Chapter 7 Bankruptcy in Washington are found in the type of debt relief sought as well as the circumstances of the debtor. When deciding on the best debt relief option, debtors should take into account their financial situation and consult with an attorney for the best course of action.

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What is the difference between liquidation and reorganization in Chapter 7 Bankruptcy?

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