If you are trying to gain a basic understanding of the ins and outs of bankruptcy, you will invariably come across some terms that you may not fully understand in the context within which they are being used. With this in mind, this blog post will provide a basic explanation of the term “reorganization” as it applies to bankruptcy.
Chapter 13 Bankruptcy
Some people are under the impression that your debts are simply wiped away when you file for bankruptcy. In fact, this is not necessarily the case. It all depends on the type of bankruptcy that you file coupled with unique circumstances surrounding your case. There is a type of bankruptcy called a Chapter 7, and unsecured debt like credit card balances and unpaid medical bills can be completely discharged if you file this type of bankruptcy. However, you cannot qualify for a Chapter 7 if you have enough disposable income to make reasonable payments toward your unpaid debts after your basic living expenses are met. Under these circumstances, you would have to file a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy is a reorganization bankruptcy. Your debts are reorganized, and you make payments over a three-year or five-year period. You don’t lose any of your property, and if you are behind on your mortgage or your vehicle payments, you can pay back the arrearage through the payment plan. High priority debts must be paid in full, and these would things like child support, spousal support, and some income tax debt. Secured claims such as your home mortgage arrearage would also be paid in full through the terms of the reorganization plan.
However, you may wind up paying a fraction of low priority unsecured debts like credit cards balances and medical bills. In fact, you may not pay any of this debt at all if your disposable income cannot stretch that far. At the conclusion of the term, the unsecured debts would be discharged, and the creditors would not be able to seek repayment from you going forward.
Chapter 11 Bankruptcy
A Chapter 11 is another type of reorganization bankruptcy. This form of bankruptcy is primarily utilized by business entities like corporations and partnerships. However, there is a debt limit for individuals who would like to file for Chapter 13. Some of these people can opt for a Chapter 11 reorganization.
If you would like to learn more about reorganization, we would be glad to assist you. Our firm offers free case evaluations to people in Medford, Klamath Falls, Portland, and other metropolitan areas in Oregon and the state of Washington. To set the wheels in motion, send us a brief message through our contact page.