The Different Bankruptcy Chapters
There are several different chapters in the United States Bankruptcy Code which allow for different types of debt relief for different types of individuals and entities.
The “Chapters,” as they are referred, are 7, 9, 11, 12, 13, and 15.
No, that’s not a fibonacci sequence, those are the actual chapter numbers in Title 11, United States Code.
The main chapters on which this page will focus are Chapter 7, Chapter 11, and Chapter 13.
But just for your information, here is what the other Chapters are for:
Chapter 9: Municipality Debt Reorganization (Cities)
Chapter 12: Family Farmer or Fisherman Debt Reorganization
Chapter 15: This newly added Chapter is for “Ancillary and Cross-Border Cases”. In short, it is for recognizing a foreign bankruptcy proceeding in the United States.
But for most of you visiting this page, Chapters 7, 11, and 13 will be the options from which you will need to choose.
This page provides a basic roadmap to help in making your determination on where to at least look to determine if you need to file bankruptcy and, if so, under which bankruptcy chapter. More details on each Chapter can be found through the links below to my pages on each individual Chapter.
Which Bankruptcy Chapter Should You File?
A. Are you a corporation or partnership? If so, your only options are Chapter 7 or Chapter 11 (corporations and partnerships cannot file Chapter 13). See my business bankruptcy page for more information on options.
B. Are you an individual or married couple? If so, any chapter may work for you depending on your circumstances and you should review each Chapter or schedule a consultation to have your options evaluated and explained.
Chapter 7 Bankruptcy
aka “Personal Bankruptcy”, “Straight Bankruptcy,” “Bankruptcy Liquidation”
Chapter 7 can be used by individuals or businesses, but accomplishes different things for each. Individuals can discharge their debts in a Chapter 7, but corporations cannot.
In general, Chapter 7 is the least expensive and quickest bankruptcy. It allows you to:
- Discharge your debts (those that are dischargeable) without doing any repayment.
- Remove certain judgment liens against property
- Takes a total of 4-5 months in most cases.
Some risks and problems with Chapter 7 are:
- While it is usually not an issue, in some cases your assets may be at risk, depending on their value and whether you have enough exemptions available to protect them.
- You may not be eligible for Chapter 7 if your income presently, or for the 6 months prior to filing is too high.
In Chapter 7 you do not make any payments to your creditors, but the trade-off is that if you have assets with values beyond the exemption limits of the applicable state or federal law in your case, the Chapter 7 Trustee can sell those assets to pay your creditors.
A qualified bankruptcy attorney can determine which exemption laws apply and whether your assets would be at any risk of being sold.
See my Chapter 7 page for more details and information.
Chapter 13 Bankruptcy
Reorganization/debt repayment for individuals with “regular income”.
Chapter 13 does everything a Chapter 7 does, but gives more options. Chapter 13 is more expensive and takes longer to receive a discharge of debts.
In Chapter 13 you can:
1. Keep all your assets
2. Remove certain liens against property (judgment liens and also sometimes junior mortgage liens)
3. Catch up on past due payments on mortgages
4. Make payments according to your budget and pay anywhere from 0-100% of your unsecured debts over 36-60 months at 0% interest.
and much more.
The “trade-off” in a Chapter 13 is that you must do a repayment plan over 36-60 months. The amount of the monthly payment will depend on a number of factors, including your budget and the non-exempt equity in your assets.
See my page on Chapter 13 for more details and information.
Chapter 11 Bankruptcy
Chapter 11 was designed for businesses, but individuals can (and sometimes must) file under this chapter. Chapter 11 is very involved and expensive, but offers a lot of flexibility and options. In Chapter 11, like in Chapter 13, you have to propose a repayment plan based on your income and other factors, but unlike in Chapter 13 your creditors in a Chapter 11 case get to vote for or against your Plan of Repayment.
Chapter 11 may be necessary for individuals who don’t meet the strict debt limits for a Chapter 13, which are presently $394,725 for noncontingent, liquidated unsecured debts, and $1,184,200 for noncontingent, liquidated secured debts.
See my page on Chapter 11 bankruptcy for more details and information.
How To Decide Which Chapter Is For You
Ultimately, the answer is to have a comprehensive consultation with an experienced bankruptcy attorney, because it is a very complex analysis which takes into account a lot of different factors, as shown above.