Chapter 7 Vs. Chapter 11 Vs. Chapter 13
The U.S. federal court system recognizes three main types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13. Among the three chapters, the role of the trustee can vary, as can the types of debts handled in discharged and non-discharged fashions and the forms of bankruptcy available to individuals and corporations.
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Bankruptcy Trustee
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A trustee has different roles depending on the type of bankruptcy filed. Chapter 7 has an assigned trustee to manage the bankruptcy process. Typically, the trustee is responsible for selling assets (if needed) and distributing bankruptcy information and proceeds (if applicable) to creditors. In Chapter 11 bankruptcy, the trustee can serve as the trustee of the business as well. In contrast with Chapter 7 and 11 filings, a Chapter 13 bankruptcy trustee typically does not have a role in the proceedings, or the role is minimal in comparison to a trustee role in Chapter 7 and Chapter 11 bankruptcy filings; however, the U.S. Courts Trustee system can assign or recommend a trustee, but for Chapter 13 filings this is done on a case-by-case basis.
Chapter 7 Individual Bankruptcy
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Chapter 7 bankruptcy, the most severe form of bankruptcy, governs the process of liquidation. This form of bankruptcy is available to both individuals and companies. When an individual files this form of bankruptcy, most unsecured debts are legally dismissed. But liens (mortgages or vehicles) are not discharged. Furthermore, Chapter 7 bankruptcy cannot dissolve debt such as child support and student loans.
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Chapter 7 Business and Corporation Bankruptcy
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Chapter 7 business and corporation bankruptcy typically causes a business to cease all operations, depending on the amount of and type of debt and the advisement of the bankruptcy trustee. For example, a company could be closed or it could be sold to another investor if approved by the bankruptcy trustee. Furthermore, in a Chapter 7 filing, corporations and partnerships do not receive a discharge; instead, the corporation or partnership is dissolved. As in the case of an individual filing Chapter 7, however, most debts, depending on their nature, are discharged.
Chapter 11 Personal Bankruptcy & Business and Corporation Bankruptcy
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Chapter 11 bankruptcy is available to both individuals and all types of corporations, businesses and partnerships. Instead of discharged debt like the Chapter 7 bankruptcy plan, Chapter 11 is a restructuring of existing debts. Moreover, a corporation, business or partnership remains in complete control of its assets, whereas in Chapter 7 business divisions are either closed or sold.
Chapter 13
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Unlike Chapter 7 and 11, Chapter 13 bankruptcy exists mainly for individuals and is the rarest form of bankruptcy filed. In fact, it is nearly the opposite of chapter 7 bankruptcy. For example, in a Chapter 13, instead of an individual's non-secured debts being discharged, the individual presents a plan to repay the debt within a period of three to five years.
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