TYPES OF BANKRUPTCY
Refer to this form when talking clients through bankruptcy options. Most
individuals will probably deal with Chapter 7 and Chapter 13 (the two options for
filing personal bankruptcy), but it’s good to understand all six types.
CHAPTER 7:LIQUIDATION
This is the most commonly filed form of bankruptcy among individuals. This
completely liquidates all of a consumer’s assets to pay creditors. In most
cases, the debtor is released from personal liability for certain dischargeable
debts once they file. This option is suitable for consumers who have no hope
of repaying any of their debts. Chapter 7 is also an option for businesses who
wish to liquidate their assets and cease operation.
CHAPTER 9: MUNICIPALITY INSOLVENCY
When a municipality like a city, town, county, taxing district or school district
becomes insolvent, they can file for Chapter 9. This allows them to reorganize
and propose a plan for repayment, similar to Chapter 11 bankruptcy.
CHAPTER 11: BUSINESS REORGANIZATION
When a business wants to maintain its operation but is currently not
profitable, the business can file Chapter 11. This allows them to repay
creditors through a court-approved reorganization plan while still running
the business. Chapter 11 allows the business to repay creditors while
undergoing a reorganization that, ideally, makes the business more profitable.
CHAPTER 12: FARM BANKRUPTCY
This option is for family farmers with regular annual income. Chapter 12 is
very similar to Chapter 13. The family farmer can continue their operation
while they work to develop a three-to-five-year plan to repay creditors.
TYPES OF BANKRUPTCY
CHAPTER 13: INDIVIDUAL DEBT ADJUSTMENT
Chapter 13 is designed for consumers with a reliable source of income who
have a desire to repay their debts but are currently unable to do so. Unlike
Chapter 7, Chapter 13 may allow a consumer to keep a valuable asset, such
as their home. Chapter 13 helps the consumer come up with a plan to repay
creditors, through a trustee, over a period of three to five years. Upon
completion of the plan, any remaining debts are discharged and the consumer
is protected from legal action by creditors.
CHAPTER 15: FOREIGN ENTITY BANKRUPTCY
When assets are held in two different countries, Chapter 15 allows a
representative of a corporate bankruptcy proceeding outside of the U.S. to be
able to work with U.S. courts.
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