The Difference Between Chapter 9 & 13 Bankruptcies
The decision to file for bankruptcy protection is never an easy one. It's often made only after trying a number of other solutions to what can be overwhelming financial difficulties. But once the decision to file for bankruptcy protection is made, the next step is to determine what type of bankruptcy to file for.
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Chapter 13 Bankruptcy
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Chapter 13 bankruptcy is available for individuals who have a present income but are not able to satisfy all of their debts. By submitting a plan to a local bankruptcy court, the individual can negotiate paying a portion of his outstanding debts over time, with the remainder of his debts forgiven at the end of the repayment term. Filing chapter 13 bankruptcy allows the debtor to protect assets such as homes or real estate from being seized, and prevents further collections actions or lawsuits from his creditors.
Chapter 9 Bankruptcy
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Chapter 9 bankruptcy provides similar bankruptcy protection to governmental agencies such as municipalities, counties, cities, tax districts, towns, municipal utilities, villages and school districts. According to the bankruptcy code, chapter 9 bankruptcy is available only to a "political subdivision or public agency or instrumentality of a state." Any such agency may propose a repayment plan to the bankruptcy court in their area, which must approve the plan before it goes into effect. Chapter 9 bankruptcy does protect the agencies' assets, as there are no provisions for the sale or disbursement of assets or proceeds from assets.
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Eligibility
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Any individual is eligible to file for chapter 13 bankruptcy protection, provided she has the means to pay back a portion of the debts owed. Individuals who do not have significant assets to protect and are unable to pay off any portion of their debts, generally file under chapter 7 bankruptcy rather than under chapter 13. For filing chapter 9, a city or municipality must satisfy four conditions: it must be insolvent; it must desire to make a plan to restructure its debts; it must have state approval to file for chapter 9 protection; it must have negotiated in good faith with its creditors (unless negotiation is impractical) or have the consent of at least half of its creditors to support the filing.
Repayment
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Chapter 13 bankruptcy protection and chapter 9 protection both require the debtor to repay some portion of the debt prior to receiving forgiveness for the remaining unpaid amounts. Both require that the debtor submit a plan for debt repayment that includes addressing all outstanding debts, and both require that the bankruptcy court of jurisdiction approve the plan prior to its implementation.
Asset Protection
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Both chapter 13 and chapter 9 bankruptcy filings protect the assets of the debtors. Chapter 13 provides asset protection for individuals while chapter 9 protects the assets owned by a municipality or other qualifying entity.
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References
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