Bankruptcy: By the Chapters

There are six types of bankruptcy, according the U.S. Courts website: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13 and Chapter 15. The two most common types of bankruptcy are Chapter 7 and Chapter 13.

Chapter 7 is Liquidation.
This chapter is most used by individuals, but can also be used for businesses, and is considered the most severe. When a person declares bankruptcy under Chapter 7, a court-appointed trustee seizes the individual’s assets. The trustee then sells everything for cash to pay off the individual’s creditors.

Chapter 13 is Adjustment of the Debts of an Individual with Regular Income. This type of bankruptcy is often preferred overChapter 7 because it allows the debtor to keep his assets, such as a house. This chapter allows the debtor to pay his creditors over a period of time, usually three to five years. Chapter 13 does not provide an immediate discharge of debts, as Chapter 7 does. With this chapter, the individual is protected from any wage garnishments or lawsuits from the creditors.

Chapter 12 is similar to Chapter 13 in that the debtor has no more than three or five years to pay creditors, but this chapter solely provides debt relief to family farmers and fishermen with regular income. Chapter 12 also allows the farmer or fisherman to continue with his business while the bankruptcy plan is being executed.

Chapter 11, titled Reorganization, is normally utilized by commercial enterprises that want to continue business while repaying creditors through the court-approved plan of reorganization. According to the U.S. Court website, “The chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan”. The company usually goes through a process of consolidation to reduce the debt load and reorganize the business.

Chapter 9 is similar to Chapter 11, but only a municipality may file for this type of bankruptcy, including towns, villages, and counties.

Finally, Chapter 15, the Ancillary and Other Cross-Border Cases, is a chapter for providing efficiency in dealing with cross-border insolvency cases. This involves bankruptcy subject to the laws of the United States and one or more foreign countries.


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