The Different Chapters Of Bankruptcy Explained

The term bankruptcy is well-known in the United States.

The federal courts can assist you in filing bankruptcy.

But, how can you distinguish between the various chapters of bankruptcy? The United States has six bankruptcy chapters: Chapter 7, Chapter 9, Chapter 11, Chapter 12 and Chapter 13, with Chapter 7 bankruptcy the most commonly filed.

Here is a summary of the details for each chapter of bankruptcy.

Chapter 7 Bankruptcy

Chapter 7, also known as liquidation bankruptcy, the most popular type of bankruptcy in America and the most basic of all forms of bankruptcy. Chapter 7 allows an individual to liquidate their property and distribute it to creditors. Individuals can keep “exempt property”.

Businesses that file chapter 7 may be provided with a trustee to manage the business for a specified period of time by the courts. The trustee will generally take responsibility for asset liquidations and the proceeds.

Chapter 9 Bankruptcy

Chapter 9 bankruptcy is for municipalities. This includes cities, towns and counties as well as school districts. Chapter 9 bankruptcy protects municipalities from creditors and allows them to develop a plan to adjust their debts. In 2013, the city of Detroit filed chapter 9, becoming the biggest city in the history of the U.S. to file for bankruptcy.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy can be used to reorganize your business or personal finances. Chapter 11 bankruptcy is different from chapter 7. The debtor retains control over the business and does not have to sell all its assets. Chapter 11 allows a company to emerge from bankruptcy as a viable business. Businesses may try to modify the terms of debts like interest rates or values of payments.

Chapter 12 Bankruptcy

This type of bankruptcy is for family farmers and family fisherman who are in financial distress. Chapter 12 allows the debtor to devise a plan for repaying creditors over three to five year periods.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy (or a “wage earner program”) allows individuals with regular income to create a plan to repay their debts. Chapter 13 bankruptcy allows individuals to avoid foreclosure. On Their houses are different to chapter 7.

Chapter 15 Bankruptcy

Chapter 15 bankruptcy was added to the U.S. Bankruptcy Code in 2005 and allowed for multi-country cases.

Chapter 15’s main purpose is to facilitate cooperation between a foreign creditor, U.S. bankruptcy judges and foreign courts. For example, a foreign debtor with assets in multiple countries would file chapter 15.


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