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What Do Each Of The Bankruptcy Chapter Numbers Mean?

bankruptcy numbers meaningBankruptcy 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 refers to the different types of bankruptcy. Here are the types of bankruptcy addressed by each of the chapters within Title 11.

Chapters 1, 3 and 5 of the Bankruptcy Code deals with generic issues within all of Bankruptcy law, like definitions, how Trustee’s are selected, as well as who files claims in the 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.

Chapter 7 Bankruptcy deals with 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.

Chapter 9 Bankruptcy deals with the resolution of the debts of municipalities. For example, Detroit, MI filed Chapter 9 bankruptcy on July 18, 2013.

Chapter 11 Bankruptcy deals with the financial reorganization of businesses (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 deals with the rehabilitation of debts for family farmers and fishermen. In such cases, filing a petition stops collection actions by creditors. A trustee is appointed to evaluate and oversee the case, collect payments from the debtor, and disburse payments to creditors.

Chapter 13 Bankruptcy deals 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 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, in that it can discharge certain debts that are excepted from discharge in a Chapter 7.

Chapter 15 Bankruptcy provides a mechanism for dealing with “cross-border” insolvency or debtors of foreign countries to resolve debts owed to creditors in the U. S.

Chapters 8, 10, and 14 are not published within the U.S. Code, and were reserved for Congress to toy with in the future. For more information on bankruptcy law, visit one of the links provided or contact our team today!

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