The Chapters of the Book of Bankruptcy

Everything about bankruptcy revolves around its Chapters.

 

Bankruptcy Law, Organized

All of the federal statutes are contained in the United States Code. Like a small library, the U.S. Code is divided into “Titles.” There are 51 Titles, mostly organized alphabetically, with Title 11 about “Bankruptcy” coming right after Title 10 about “Armed Forces” and right before Title 12 about “Banks and Banking.”

The entire Title 11, commonly referred to as the Bankruptcy Code, is divided into Chapters, like a book. Some of these Chapters contain the statutes that apply to one specific type of bankruptcy option created by Congress, and so those options are known by their Chapter numbers. So, for example, Chapter 7 of Title 11 contains the statutes about what is now commonly referred to as “Chapter 7 bankruptcy.” The same thing applies to Chapters 9, 11, 12, and 13. (The statutes within the other Chapters apply more broadly to all of these specific bankruptcy options.)

ALL of the Bankruptcy Options: Chapters 7, 9, 11, 12 and 13

Each one of these Chapters is intended for a certain kind of debtor in a certain kind of situation:

Chapter 7:  Often referred to as “straight bankruptcy,” or “liquidation,” it is by far the most commonly filed option for individuals and couples. Usually all or most assets are retained by the debtor. Usually writes-off (“discharges”) most debts; provides limited options for dealing with collateral such as real estate, vehicles, other purchased goods. Can also be filed by corporations, partnerships and other business entities to orderly liquate final assets. Consumer cases usually completed in about three or four months, longer if the trustee collects assets and distributes their proceeds to the creditors.

Chapter 9:  The “adjustment of debts of a municipality,” involves the financial restructuring of a city, county, or other subdivision of a state. These are quite rare. During the last 30 years, usually about 4 to 12 cases have been filed per year throughout the whole nation.

Chapter 11:  A financial “reorganization,” primarily by corporations and other business entities. Can be used by individuals, almost always when unable to file Chapter 13 because their debts exceed the debt limits. It can provide other distinct advantage for individuals, but is very seldom used outside the business context because it is a very complicated and therefore expensive procedure.

Chapter 12:  A specialized “adjustment of debts of a family farmer or fisherman with regular annual income.” Is a blending of Chapters 11 and 13 only for farmers, ranchers, dairy owners, poultry and livestock producers, and fishermen, in some respects more powerful and flexible than those other options. Can preserve the debtor’s farm and business by reducing and restructuring its debt.

Chapter 13:  The “adjustment of debts of an individual [or couple] with regular income.” Involves preparing and getting court-approval of a 3-to-5-year payment plan, often radically reducing both the amount of debt paid each month and paid overall. Can only be used by individuals or married couples, not by corporations or partnerships. Provides many advantages not available under Chapter 7, especially for saving collateral and in taming powerful creditors like tax authorities, ex-spouses, and support enforcement agencies. 

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