Select Page

There are 6 basic types of bankruptcy cases provided for under the Bankruptcy Code, each of which is discussed in this article. The cases are traditionally given the names of the chapters that describe them.

Chapter 7 bankruptcy (Liquidation) encompasses two main rules. First, Chapter 7 does do away with legal obligations of the debtor to satisfy debts existing when the bankruptcy was filed. Second, the debtor’s property will be taken and sold to pay the creditors. In order to qualify to file for a Chapter 7 bankruptcy, there are several stipulations. The debtor must qualify financially using the “Means Test”. The debtor must not have had a case dismissed within the last 6 months. Also a person cannot eliminate debt via a Chapter 7 bankruptcy if a Chapter 7 was filed within the last 8 years or a Chapter 13 within the last 6 years.

Chapter 9 bankruptcy, entitled Adjustment of Debts of a Municipality, is designed for “municipalities” such as cities, towns, counties, taxing districts, and school districts. Chapter 9 bankruptcy allows for the reorganization of debt by extending the repayment timeline. This allows the debt to be refinanced or a principal or interest reduction on existing debts.

Chapter 13 bankruptcy, entitled Adjustment of Debts of an Individual with Regular Income, allows individuals with a regular income to devise a plan to satisfy all or a portion of their debt. Debtors offer a repayment plan that allows for installment payments lasting over a typical timeframe of 3 to 5 years.

Chapter 11 bankruptcy, entitled Reorganization, is available to partnerships, corporations, and individuals. It is typically the bankruptcy filed by large businesses that wish to restructure debt. There are no limits on the amount of debt, as with Chapter 13 bankruptcy. Due to their simplicity and lower cost, individuals usually file for a Chapter 7 or Chapter 13 bankruptcy, instead of a Chapter 11 bankruptcy.

Chapter 12 bankruptcy, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, is only available to family farmers or family fishermen. Chapter 12 was put together in response to difficulties faced by farmers and fishermen in the 1980s. While it has some similarities to that of a Chapter 13 bankruptcy, it offers more flexibility with the payments. This helps to understand how nature and seasonal periods affect the uniqueness of these operations. Chapter 12 bankruptcies are typically less expensive that Chapter 11.

Chapter 15 bankruptcy is probably the least known type of bankruptcy. Added to the Bankruptcy Code in 2005, Chapter 15 bankruptcy (Ancillary and Other Cross-Border Cases) offers the opportunity for foreign debtors to access U.S. bankruptcy courts.

Source: Bankruptcy Basics,