Overview
There are six chapters of Bankruptcy that each function uniquely to provide relief in almost any situation for a debtor. Of the six, Chapter 7 and Chapter 13 are the most common forms filed but basically, they all are structured the same in the proceeding sense.
Chapter 7
Widely known as the liquidation plan, it is absent of a repayment plan and is intended for individuals, partnerships, and corporations who are unable to repair their financial situation. Under this chapter, you would essentially agree to liquidate assets to pay off as much debt as possible with the remaining debts listed in the bankruptcy to be dismissed. There are exemptions available to assist in protecting some of your assets that may include personal belongings, vehicles, and homes, even if a balance is still owed, so long as you can continue to make timely payments on them. An attorney is best suited to assist you through the options that may be available to you.
Qualification is determined by your income. If you make below the state’s median income standards, you will often qualify. If you exceed the median, you must pass the means test or else you may be prompted to file under another chapter, such as a Chapter 13.
Chapter 9
This chapter is for municipalities such as cities, towns, counties, school districts, etc. A Chapter 9 bankruptcy arranges for such an entity to reorganize its debts and protects it from its creditors as they develop and negotiate a plan for adjusting its debts. This is typically achieved through a few ways: extending debt maturities, decreasing the amount of principle or interest, or refinancing the debt by obtaining a new loan.
Unlike the other chapters, there is no provision for liquidation of the assets to distribute to creditors. Also, the trustee is not as active in overseeing the progression of the bankruptcy and rather just approves the petition based on the debtor’s eligibility, confirms the plan of debt adjustment, and ensures execution of the plan.
Chapter 11
Typically utilized by large businesses, such as corporations, as well as partnerships and some individuals to reorganize without having to liquidate all assets. This allows for them to remain active while repaying creditors. This is accomplished by restructuring, creating and implementing a plan to repay creditors. The plan must be approved by the trustee overseeing your bankruptcy. Once the plan is finalized and confirmed, any remaining debts disclosed in the bankruptcy are discharged.
A corporation exists separate from its owners (stockholders) and in a Chapter 11, the personal assets of the stockholder are not put at risk except for the value of their investment in the company’s stock. For a sole proprietorship, the entity is intertwined and so are the assets, both personal and business-related and may require to use some of those personal assets to pay the creditors. For the small businesses, there are two relief options in which they can file based on eligibility. Either option has accelerated deadlines, debt limits, and both options contain procedural differences that are unique to the subchapter of the Chapter 11 a small business would file than what corporations would file for.
In a Chapter 11, the debtor will have the rights and duties of a trustee to examine and object to claims, filing informational reports (monthly operating reports), and accounting for property. However, the debtor will not perform the investigative functions of a trustee.
Chapter 12
Chapter 12 is designed for family farmers and family fishermen with regular annual income and enables financially distressed family farmers and fisherman to propose and carry out a plan to repay all or part of their debts. It encompasses a repayment plan as installments to be made to creditors over three to five years, though the standard is three years with the option to have it extended with a court-approved extended period for cause, such as when domestic support claims exist, child support or alimony, but is not to exceed five years.
Filing a Chapter 12 instead of a Chapter 11 or 13 meets the economic reality of fisherman and farmers from the disadvantages of being wage earners with larger debts associated with the agricultural financial territory they are employed in, and is seasonal in nature.
Chapter 13
Under this option, it permits those with regular income to make an adjustment to how they repay some debts by submitting a repayment plan to the court and must be approved by a bankruptcy court trustee, who is typically the one who will make payments under the plan. So, you would pay the trustee and the trustee’s office then pays the creditors.
Filing a Chapter 13 is typically the option for those who failed the means test for Chapter 7 (income exceeds the state’s median) and have stable income to make some payments on debt but enough income to pay all the debts currently structured. The duration of the payment plan is over the course of three to five years. Priority and secured debts (taxes, auto loans, etc.) are paid in full. Unsecured, non-priority debts (medical bills, credit card debt, etc.) are partially paid and if the repayment plan is successful, the remaining debts are dismissed at the end of the plan.
Chapter 15
Chapter 15 involves bankruptcy cases filed outside the U.S. and offers a cooperative proceeding between the U.S. courts and foreign courts. This effectively permits a foreign debtor to file for bankruptcy in the U.S. that have assets in more than one country with the Chapter 15 being secondary to the main one taking place in a foreign country. Basically, the foreign court would have access to the U.S. court system in order to proceed in accompanying a proceeding. The foreign representative of the case also has the option for additional relief to bring a full bankruptcy case.
In the Least…
It is important to consult with an attorney to determine the best option available to you. Each option listed above has intricated fragments that make up a complex system. As ever-changing as life is, you may find yourself in new situations throughout your bankruptcy that can complicate your case, so an attorney is worth it. It makes the process more fluid and less anxious-inducing.
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