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Chapter 7

Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to a "means test" designed to determine whether the case should be permitted to proceed under chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, creditors have the right to file a motion requesting that the court dismiss your case under ยง707(b) of the Code. It is up to the court to decide whether the case should be dismissed.

Under Chapter 7, you may claim certain of your property as exempt under governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors.

Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may still be responsible for most taxes and student loans; debts incurred to pay nondischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury cause by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

Chapter 11

Chapter 11 is designed for the reorganization of a business. In most instances the business remains in control of its operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court. Chapter 11 affords the business a number of mechanisms to restructure its business including the acquisition of financing and loans on favorable terms by giving new lenders first priorities on the business earnings. Another benefit of Chapter 11 is that the court may permit the business to reject and cancel contracts while also staying any pending litigation against the business during their reorganization. A business may emerge from a Chapter 11 bankruptcy in a few months or within several years, depending on the complexity of the case.

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