6 Chapters of Bankruptcy
Bankruptcy is a debt relief mechanism codified within the Federal Statutes that affords American citizens and businesses the ability to get rid of any unsecured debt that they have or make a plan to repay it.
In this article, we are going to provide a brief synopsis of each of the 6 chapters of Bankruptcy. Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. Though Chapter 7 and Chapter 13 are the most commonly filed.
The most common type of bankruptcy filed in the United States is Chapter 7. This is usually referred to as “liquidation bankruptcy”, and is the most basic form of bankruptcy. It requires a debtor to “liquidate” their property (aside from what the courts allow the debtor to exempt) and pay off their creditors with the proceeds.
Chapter 9 bankruptcy is the chapter afforded to municipalities such as cities, towns, counties, and school districts. Municipalities that file Chapter 9 can earn protection from their creditors while they develop a plan for adjusting their debts. The City of Detroit filed Chapter 9 in 2013 and is the largest US city to do so.
Chapter 11 bankruptcy is informally known as the “reorganization Chapter” and is available to individuals as well as businesses.
Chapter 11 allows a business to reorganize their debt, and sometimes renegotiate things like interest rates, and monthly payment amounts. Upon completion, this chapter will allow a business to come out of bankruptcy as a “healthy business”.
Chapter 12 bankruptcy is designed for “family farmers” and “family fishermen” that are having financial difficulties. Under this chapter, the debtor comes up with a plan to pay back creditors over three to five years.
Chapter 13 bankruptcy, otherwise known as the “wage-earner plan,” allows a debtor that earns regular income to develop a plan to pay back parts, or all, of their debts. The big advantage of filing chapter 13 is it allows homeowners to avoid foreclosure on their houses, in contrast to chapter 7.
Chapter 15 bankruptcy, was added to the U.S. bankruptcy code in 2005. Its main goal is to provide cooperation between a foreign debtor, foreign courts, and the U.S. bankruptcy courts. Therefore, a foreign debtor who has assets in multiple countries would file chapter 15.
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