Trying to determine which bankruptcy chapter could help you and your family the most maybe a little overwhelming at first. But there is no need to panic. A bankruptcy lawyer will guide you through the debt relief options that are available to you under various chapters of the U.S. Bankruptcy Code.
To begin with, we tend to characterize bankruptcies by the debtors they were designed to help: consumers, businesses, municipalities, family farmers or fishermen, and cross-border insolvencies.
Of course, some chapters may be more familiar to you than others simply because they are more common. So you know where to begin looking for debt relief, these are the six bankruptcy chapters:
● Chapter 7: Liquidation Bankruptcy – Fresh Start
The Chapter 7 bankruptcy is commonly referred to as liquidation bankruptcy. Common to both consumer debtors and business debtors, liquidation bankruptcy involves the sale of all nonexempt property with the proceeds (fewer costs of administration and sale) being distributed to creditors in order of their priority claims.
● Chapter 9: Municipal Bankruptcy
The Chapter 9 bankruptcy is also known as a municipal reorganization; it is reserved for cities, school districts, counties, municipal utilities (such as water districts), and tax districts.
● Chapter 11: Reorganization Bankruptcy
Chapter 11 bankruptcies are known as business reorganizations. The business debtor offers a plan to reorganize the company so that it can continue operating (typically with the debtor in possession) while paying off business debts over time. Although this form of debt relief is most common to corporations, partnerships, and other business organizations, it may be utilized by individual debtors who qualify.
● Chapter 12: Family Farmer or Family Fisherman Bankruptcy
Chapter 12 is rather limited in that it is available only to family farmers or family fishermen with regular annual income. The debtor provides a repayment plan to pay off creditors over three to five years, although a longer payment period is possible for the cause. These debtors may be individuals, corporations, or partnerships. In 2012, there were only 512 total Chapter 12 filings.
● Chapter 13: Individual Debt Adjustment Bankruptcy
The Chapter 13 filing is also known as a wage earner’s plan because the individual must have a regular income to qualify. The debtor must provide a reasonable repayment plan to pay off creditors over a three- to five-year period. This is considered to be a consumer bankruptcy (it is unavailable to corporations and partnerships) in which the debtor keeps both exempt and nonexempt property. The debtor’s discharge, however, does not arrive until he or she completes the repayment plan. Many debtors begin with a Chapter 13, but later convert the case to a Chapter 7 because of changed circumstances requiring liquidation bankruptcy (such as long-standing unemployment or serious illness). Statistically, 366,532 Chapter 13 bankruptcies were filed in the U.S. Bankruptcy Courts in 2012.
● Chapter 15: Ancillary and Other Cross-Border Bankruptcy Cases
Chapter 15 is still fairly new in that it was introduced to debtors and creditors in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This chapter is only used when interests, claimants, debtors, and assets are located in more than one country.
The summaries above only touch on the six debt relief chapters available under the U.S. Bankruptcy Code. Before committing to anything so important, you should consult with an experienced bankruptcy lawyer who can explain in detail which debt relief should be petitioned for, if any, and why.
Charles Laputka is a Bankruptcy attorney in Allentown, Pennsylvania. If you need help filing for Chapter 7 or Chapter 13 Bankruptcy, Laputka Law Office can help. Located in Allentown but willing to help statewide.
