Liquidation or Reorganization?
Individuals and most small businesses are eligible for bankruptcy relief under Chapter 7, Liquidation, or Chapter 13, Reorganization. The primary difference between these two types of bankruptcy assistance is defined by the effect on the debtor’s secured creditors. In a Chapter 7 Liquidation case, the debtor must continue to maintain contractual payments to any secured creditor whose collateral the debtor intends to retain. For example, if the debtor wishes to keep a car, he must generally continue to make all regular payments even after his Chapter 7 case is filed. In contrast, a Chapter 13 case may reorganize or restructure all payments except mortgage payments on a primary residence. The debtor will continue regular payments on his mortgage, while all other debts (car payment, furniture payment, IRS, unsecured debt) are paid through the Chapter 13 repayment plan. The Chapter 13 plan may be used to cure arrearages on a mortgage, however, and by using this cure and reinstatement optio
