Options for Filing Bankruptcy

Bankruptcy is available to a variety of people and entities. Each bankruptcy chapter provides a different type of relief, depending on the type of debt you have and whether you are filing an individual case for yourself or a case on behalf of a business or a municipality.

Chapter 7

Chapter 7 bankruptcy is available to individuals and businesses only. The court appoints a trustee to administer your case; the trustee evaluates your property and determines if he can sell any of it, or if he can collect any money. You can use exemptions to protect your property from the trustee. Once case administration is complete, the court enters a discharge order. The discharge eliminates your obligation to repay most general unsecured debts. An individual can file Chapter 7 if she meets certain income requirements or if most of her debt is personally guaranteed business debt. A business only files Chapter 7 if it is closing its doors. Business Chapter 7 debtors do not obtain a discharge; the business simply winds down and ends operations.

Chapter 9

Chapter 9 is available to municipalities. Municipalities include cities, towns, villages, townships, counties, school districts, taxing districts and municipal utilities. Chapter 9 bankruptcies are extremely rare. A municipality may file bankruptcy to get protection from its creditors while it prepares a plan to restructure its debts. Unlike other types of bankruptcy, the trustee and the court have little involvement in Chapter 9 cases and the municipality is not required to sell any assets.

Chapter 11

Chapter 11 is a reorganization bankruptcy. Businesses primarily file Chapter 11, although individuals who have too much debt to file Chapter 13 and make too much money to file Chapter 7 also file Chapter 11. Businesses file Chapter 11 if they intend to continue operations but need some form of debt relief in order to make their operations profitable. Corporate Chapter 11 cases can be short, but they can also drag on for years. Chapter 11 does provide a discharge to both corporate and individual debtors. Railroads can only file bankruptcy under Chapter 11.

Chapter 12

Chapter 12 bankruptcy is for family farmers and family fishermen. To qualify, the debtor must operate a farm or a commercial fishing operation. The operation's total debts must be less than $3,792,650 for farmers, and less than $1,757,475 for fishermen. A farmer's debts must be at least 50 percent related to the farming business, and a fisherman's debts must be at least 80 percent related to the fishing operation. In either case, more than 50 percent of the debtor's gross income during the previous tax year must be from the farming or fishing operation. Chapter 12 operates similarly to Chapter 13 in that the debtor repays his creditors over a period of years; however, Chapter 12 cases are shorter, less expensive and simpler than Chapter 13 cases.

Chapter 13

Chapter 13 is available only to individual debtors who have unsecured debts less than $360,475 and secured debts less than $1,081,400. Businesses cannot file Chapter 13. A Chapter 13 is a repayment plan. Over a three-to-five year period, the debtor makes periodic payments to a trustee, who then uses the funds to repay creditors. At the end of the case, if the debtor has met all of his obligations, the court will enter a discharge order.

References

• United States Courts: Bankruptcy Basics: Chapter 7
• United States Courts: Bankruptcy Basics: Chapter 9
• United States Courts: Bankruptcy Basics: Chapter 11
• United States Courts: Bankruptcy Basics: Chapter 12
• United States Courts: Bankruptcy Basics: Chapter 13
• American Bankruptcy Institute: U.S. Code, Title 11, Section 109

Resources

• United States Courts: Bankruptcy Basics: Process