Bankruptcy is governed only by federal law. The federal laws of the United States are “codified” within books of various groups, almost like volumes, with each volume receiving a numerical title. For example, Veterans Benefits are addressed in Title 38 of the U.S. Code whereas Title 17 addresses Copyrights. Bankruptcy is found in Title 11 of the U.S. Code. Each title is further divided into chapters. Under Title 11, the different chapters refer to different types of bankruptcy. Here are the types of bankruptcy addressed by each of the chapters under Title 11.
Chapters 1, 3, and 5 of the Bankruptcy Code address generic issues and operations within all of bankruptcy law including definitions, how trustees are selected, as well as who files claims in these cases and when, to name a few. Chapters 1, 3, and 5 are not bankruptcy chapters that someone can elect to file a petition under as they largely outline how a bankruptcy proceeding works.
Chapter 7 Bankruptcy handles basic liquidation of assets for both individuals and businesses. It is the simplest and/or quickest form of bankruptcy. It involves the liquidation of non-exempt assets by a Chapter 7 Trustee, with the goal of obtaining a discharge which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid from the liquidation of assets. However, there are certain exceptions to these general rules. Credit card bills, medical bills, and other types of unsecured debt may be discharged for qualifying Chapter 7 bankruptcy debtors.
Chapter 9 Bankruptcy provides municipalities protection from creditors while developing a plan to resolve outstanding debts. For example, Detroit, Michigan filed Chapter 9 bankruptcy on July 18, 2013. Municipalities can include counties, school districts, cities, and even taxing districts. Municipalities must work to negotiate a repayment plan instead of liquidating all assets to repay lenders. A successful Chapter 9 filing may reduce the amount of debt owed, refinance debts through a new loan, or extend debt repayment deadlines.
Chapter 11 Bankruptcy allows financial reorganization and restructure of businesses or corporations. It is sometimes used by individuals with substantial debts. Chapter 11 allows a company to continue doing business while adhering to a debt repayment plan, or “Plan of Reorganization”, agreed upon by the bankruptcy court. Most often this debt repayment plan involves a repayment of some, but not all, of the indebtedness owed by the company over a period of a few years, based upon the company’s ability to pay. Each Chapter 11 Plan of Reorganization is unique and molded to the needs of the debtor in that case.
Chapter 12 Bankruptcy pertains to rehabilitation of debts for family farmers and fishermen with regular annual income. In such cases, filing a petition stops collection actions by creditors. Debtors who file Chapter 12 then propose a repayment plan to repay creditors over the following three to five years. Longer repayment periods may be granted by the U.S. Bankruptcy Courts with proper cause. Debtors must also attend a “meeting of the creditors” to discuss financial assets and the repayment plan with the lenders under oath. A trustee is appointed to evaluate and oversee the case, collect payments from the debtor, and disburse payments to creditors.
Chapter 13 Bankruptcy concerns itself with the rehabilitation of debts for individuals with a source of regular income. Chapter 13 allows for the development of a repayment plan to repay all or part of the debts owed over a three to five year time period. This repayment plan is overseen by a Chapter 13 Trustee. The ultimate goal of a Chapter 13 filing is to receive a discharge, which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid (in whole or in part) in the plan. Chapter 13 has certain advantages over a Chapter 7 filing, in that it can discharge certain debts that are excepted from discharge in a Chapter 7 case.
Chapter 15 Bankruptcy adopts the Model Law of Cross Border Insolvency from the United Nations to provide a mechanism for addressing “cross-border” or ancillary insolvency, or debtors of foreign countries, to resolve debts owed to creditors in the U.S. Corporations in countries other than the United States may have bankruptcy cases that involve U.S. assets. Chapter 15 allows for foreign bankruptcy proceedings to access the U.S. Bankruptcy Courts in order to reach resolutions.
Chapters 8, 10, and 14 Bankruptcies are not published within the U.S. Bankruptcy Code, and were reserved for Congress to use as needed in the future. They largely operate as theoretical bankruptcies.