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Does debt counseling typically precede a bankruptcy filing?

Readers may have questions about how a Chapter 7 bankruptcy filing differs from a Chapter 11, as well as the exhaustion of any debt management strategies that may precede those filings.

In a word, a Chapter 11 filing offers reorganization, rather than the liquidation accomplished by a Chapter 7 filing. Both options are available to individuals, but a Chapter 11 is generally much more involved. According to the website of the United States Courts, a debtor generally must seek credit counseling from an approved counseling agency within the 180 days preceding his or her Chapter 11 filing. If that counseling produces a debt management plan, it may have to be filed with the bankruptcy court. 

Can a debtor reorganize his or her debts without filing for Chapter 11? An attorney that focuses on bankruptcy law may be able to provide counseling to an individual struggling with debt management, similar to the mandatory counseling required by a Chapter 11 filing. An attorney can also explain why a Chapter 7 might be preferable over a Chapter 11, depending on a debtor's unique circumstances.

In fact, there may be many possible reasons why a Chapter 7 filing offers distinct advantages over a Chapter 11. First, although a Chapter 7 may involve liquidating assets to pay off creditors according to the priorities set by the United States Bankruptcy Code, there are certain assets that a debtor may be allowed to keep. Such exempt property means that a Chapter 7 filing may not result in a total loss of property. It should also be noted that an unsuccessful Chapter 11 might be converted to a Chapter 7. 

Our law office offers a free initial consultation to individuals who are financially struggling and have questions about the various protections offered by a bankruptcy filing. We may even be able to suggest debt management strategies to stave off a bankruptcy filing. 

Source: United States Courts, “Alternatives to Chapter 7,” copyright Administrative Office of the U.S. Courts on behalf of the Federal Judiciary, accessed August 2015

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Goldman & Beslow, LLC is a Federal Debt Relief Agency by an Act of Congress. We have proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 38 years.

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