Rick Kelo, Chicago area tax expert, answers the often-asked question about the different types of bankruptcy filings; Chapter 7, Chapter 11 and Chapter 13. Kelo received his MBA from the University of Illinois at Chicago in 2006, graduating Magna Cum Laude with a focus in Finance. He is currently an Executive Recruiter with TaxScout, the nation’s premier tax search firm placing tax professionals in companies across the country.

Bankruptcy is no longer the unspoken word, whispered in the back rooms of offices and houses. It now gives people and companies a fresh start, who are struggling with insurmountable debt and non-stop calls from creditors. Kelo stresses that every case is different, but the most common forms of bankruptcy are Chapter 7, Chapter 11 and Chapter 13. But, what is the difference? Your tax expert is well versed in the difference, but this overview will give you a starting point.Richard Arthur Kelo

Broadly, Chapter 7 bankruptcy is a liquidation of property and assets, and the proceeds going to the creditors to pay off or begin to pay off debts. Chapter 7 can be used by any individual or company, no matter the amount of debt. There are, however, restrictions on income levels. It is best to speak to your tax professional.

Chapter 11 bankruptcy is a reorganization method, where the debtor wants to keep his or her assets and continue business, but can not under the current structure. In Chapter 11, the debtor proposes a plan to repay those he owes money to, either in full or in part. Each creditor must agree with the plan separately.

Finally, the final most common type of bankruptcy is Chapter 13. After the housing crisis of the mid 2000s, many families filed for Chapter 13, and it was national news as more families than ever before filed for Chapter 13 instead of losing their homes. Chapter 13 is only available to individuals, not businesses, and allows the debtor to catch up on the amount in arrears thru a plan set forth in their filing.

Bankruptcy laws are quite difficult to navigate, and should be used only as a last resort. They are not to be taken lightly, and Rick Kelo advises everyone to speak in depth to their tax professional as they weigh the decision to file bankruptcy or not. It is not a decision to be taken lightly, and companies are strongly advised to discuss the implications with a tax professional.

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