Bankruptcy Chapters - Overview
There are five different types of bankruptcy outlined by the United States Bankruptcy Code. Each type of bankruptcy is identified by the chapter of the Code that describes the code.
Chapter 7 Bankruptcy : Liquidation
Chapter 7 Bankruptcy is also known as “liquidation,” "straight bankruptcy," or “complete bankruptcy,” is the most commonly filed form of bankruptcy among individuals. Chapter 7 Bankruptcy essentially allows the debtor to make a fresh start.
When a Chapter 7 Bankruptcy has been filed, a trustee collects the debtor's nonexempt assets, which are then reduced to cash, and distributions are made to the creditors in accordance with bankruptcy law.
In most Chapter 7 Bankruptcy cases the debtor receives a discharge releasing him or her from personal liability for certain dischargeable debts. You should consider a Chapter 7 Bankruptcy if there is no hope in repaying any of your debts, there are no cosigners involved, or if court action by creditors is imminent. Businesses that wish to liquidate their assets and discontinue business may also file under Chapter 7 Bankruptcy.
More about Chapter 7
Chapter 13 Bankruptcy : Adjustment of Debts of an Individual With Regular Income
Chapter 13 Bankruptcy is designed for an individual who has a regular source of income, a desire to pay his or her debts, but currently is unable to do so. Chapter 13 Bankruptcy may be preferable to Chapter 7 Bankruptcy because Chapter 13 Bankruptcy usually allows the debtor to keep a valuable asset, such as his or her own house. Under Chapter 13 Bankruptcy the debtor may arrange and propose a plan to the Court. The plan illustrates how the debtor will repay creditors over time, between three and five years. The Court must then approve this plan.
If the Court approves the plan, the debtor will make payments to the creditors through a trustee. The debtor is then protected from actions by creditors including lawsuits, wage garnishments, and actual contact with the debtor for the life of the plan. Upon completion of the plan, any remaining debts are discharged.
You may consider filing a petition under Chapter 13 Bankruptcy if you owe debts that are not dischargeable under Chapter 7 Bankruptcy, such as taxes and child support, or if you have liens that are larger than the value of the assets securing the debt, you have years of unfiled taxes, you are behind or car or house payments, or your assets are worth more than the available exemptions.
More about Chapter 13
Chapter 11 Bankruptcy : Reorganization
Chapter 11 Bankruptcy primarily applies to commercial enterprises that wish to continue business operations while repaying creditors through a court-approved reorganization plan.
Under Chapter 11 Bankruptcy, the debtor has the right to file a plan of reorganization within 120 days after the order for relief. The debtor must provide creditors with a disclosure statement that allows the creditors to evaluate the plan, although whether the plan is approved is ultimately the Court’s decision.
The debtor has a number of options under Chapter 11 for returning the business to profitability. These options include reducing debts by repaying a portion of them while discharging others, discharging burdensome contracts and leases, and rescaling operations of the business. Upon completion of the plan, the debtor usually has undergone a period of consolidation and emerges with a reduced debt load and a reorganized, and more profitable, business.
More about Chapter 11
Chapter 12 Bankruptcy: Adjustment of Debts of a Family Farmer with Regular Income
Chapter 12 Bankruptcy provides debt relief to family farmers with regular annual income. Chapter 12 Bankruptcy is very similar to Chapter 13 Bankruptcy because both of these bankruptcy options allow the debtor to propose a plan of debt repaymentover a period of three to five years, as well as a trustee is assigned to the case who is responsible to oversee the bankruptcy process and disbursement of payments to the creditors. Chapter 12 Bankruptcy allows a family farmer to continue to operate the farm while the plan is being carried out.
Chapter 9 Bankruptcy: Adjustment of Debts of Municipality
Only a municipality, such as cities, towns, villages, counties, taxing districts, municipal utilities, and school districts, may file for Chapter 9 Bankruptcy. Under Chapter 9 Bankruptcy, the municipality is expected to reorganize and propose a plan of repayment, similar to Chapter 11 Bankruptcy.
Important Bankruptcy Information
Bankruptcy filings are public records. A bankruptcy will stay on your credit report for ten years. However, the law prohibits an employer from discriminating against you because you filed for bankruptcy.
Contact a bankruptcy lawyer in your area to find out more about filing for bankruptcy.