Bankruptcy Chapters Explained

Chapter 7

The potential chapter 7 debtor should understand that a straight bankruptcy case does not involve the filing of a plan of repayment as in chapter 13, but rather envisions the bankruptcy trustee's gathering and sale of the debtor's nonexempt assets, from which holders of claims (creditors) will receive distributions in accordance with the provisions of the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. In addition, under chapter 7, the individual debtor is permitted to retain certain "exempt" property. The debtor's remaining assets are liquidated by a trustee. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

In order to qualify for relief under chapter 7 of the Bankruptcy Code, the debtor must be an individual, a partnership, or a corporation. 11 U.S.C. §§ 109(b); 101(41). Relief is available under chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The discharge has the effect of extinguishing the debtor's personal liability on dischargeable debts. In a chapter 7 case, however, a discharge is available to individual debtors only, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although the filing of an individual chapter 7 petition usually results in a discharge of debts, an individual's right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

Chapter 11

A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a "reorganization" bankruptcy.

How Chapter 11 Works

A bankruptcy case commences when a bankruptcy petition is filed with the bankruptcy court. Fed. R. Bankr. P. 1002. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. 11 U.S.C. §§ 301, 303. A voluntary petition should adhere to the format of Form 1 of the Official Forms prescribed by the Judicial Conference of the United States. The Official Forms may be purchased at legal stationery stores or download from the internet at www.uscourts.gov. The voluntary petition will include standard information concerning the debtor's name(s), social security number or tax identification number, residence, location of principal assets (if a business), the debtor's plan or intention to file a plan, and a request for relief under the appropriate chapter of the Bankruptcy Code. In addition, the voluntary petition will indicate whether the debtor qualifies as a small business as defined in 11 U.S.C. § 101(51C) and whether the debtor elects to be considered a small business under 11 U.S.C. § 1121(e).

Upon the filing of a voluntary petition for relief under chapter 11 or, in an involuntary case, the entry of an order for such relief, the debtor automatically assumes an additional identity as the "debtor in possession." 11 U.S.C. § 1101. The term refers to a debtor that keeps possession and control of its assets while undergoing a reorganization under chapter 11, without the appointment of a case trustee. A debtor will remain a debtor in possession until the debtor's plan of reorganization is confirmed, the debtor's case is dismissed or converted to chapter 7, or a chapter 11 trustee is appointed. The appointment or election of a trustee occurs only in a small number of cases. Generally, the debtor, as "debtor in possession," operates the business and performs many of the functions that a trustee performs in cases under other chapters. 11 U.S.C. § 1107(a).

A written disclosure statement and a plan of reorganization must be filed with the court. 11 U.S.C. § 1121. The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor's plan of reorganization. 11 U.S.C. § 1125. The information required is governed by judicial discretion and the circumstances of the case. The contents of the plan must include a classification of claims and must specify how each class of claims will be treated under the plan. 11 U.S.C. § 1123. Creditors whose claims are "impaired," i.e., those whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan, vote on the plan by ballot. 11 U.S.C. § 1126. After the disclosure statement is approved and the ballots are collected and tallied, the bankruptcy court will conduct a confirmation hearing to determine whether to confirm the plan. 11 U.S.C. § 1128.

Chapter 12

In tailoring chapter 12 to meet the economic realities of family farming, this law has eliminated many of the barriers that family farmers had faced when seeking to reorganize successfully under either chapter 11 or 13 of the Bankruptcy Code. For example, chapter 12 is more streamlined, less complicated, and less expensive than chapter 11, which is better suited to the large corporate reorganization. In addition, few family farmers find chapter 13 to be advantageous, because it was designed for wage earners who have smaller debts than those facing family farmers. In chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farm reorganizations. At the time of the enactment of chapter 12, Congress could not be sure whether chapter 12 relief for the family farmer would be required indefinitely. Accordingly, the law (which first provided that no chapter 12 cases could be filed after September 30, 1993) currently provides that no cases may be filed under chapter 12 after July 1, 2000.

The Bankruptcy Code provides that only a family farmer with "regular annual income" may file a petition for relief under chapter 12. 11 U.S.C. §§ 101(18), 109(f). The purpose of this requirement is to ensure that the debtor's annual income is sufficiently stable and regular to permit the debtor to make payments under a chapter 12 plan. Allowance is made under chapter 12, however, for situations in which family farmers may have income that is seasonal in nature. Relief under this chapter is voluntary; thus, only the debtor may file a petition under chapter 12.

Chapter 13

Chapter 13 is designed for individuals with regular income who desire to pay their debts but are currently unable to do so. The purpose of chapter 13 is to enable financially distressed individual debtors, under court supervision and protection, to propose and carry out a repayment plan under which creditors are paid over an extended period of time. Under this chapter, debtors are permitted to repay creditors, in full or in part, in installments over a three-year period, during which time creditors are prohibited from starting or continuing collection efforts. A plan providing for payments over more than three years must be "for cause" and be approved by the court. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. § 1322(d).

Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $269,250 and secured debts are less than $807,750. 11 U.S.C. § 109(e). A corporation or partnership may not be a chapter 13 debtor. Id.

An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).

For more information, please visit www.mybankruptcycounseling.com

Nathan Dawson writes for http://www.mybankruptcycounseling.com

In The News:

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news

The Hill

New Congress could help alleviate student debt, says personal finance CEO
The Hill
Personal finance CEO Zack Friedman says a Democratic-controlled House and Republican-controlled Senate could create the right environment for better student debt assistance. Friedman told “Rising” he thinks there's potential for House Democrats to ...


Motley Fool

Cryptocurrencies, Square Earnings, and The Motley Fool's New ...
Motley Fool
Here's an interview with our resident cryptocurrency expert, as well as the latest from around the financial sector.

and more »

GeekDad (blog)

GeekDad Daily Deal: The Complete Personal Finance Course
GeekDad (blog)
Learn how to manage your finances better with today's Daily Deal, the Complete Personal Finance Course. Get access to 104 lectures and over twelve hours of content as you gain a better understanding of how to save, make, and protect your money. You'll ...


New York Times

Washington Gridlock? Maybe Not on These Personal Finance Issues
New York Times
Because Washington is so unpredictable these days, we see no reason to give up hope that sensible efforts to improve the personal finances of millions of people might somehow bear fruit. Here are six initiatives with support from both parties that we ...


Bloomington Pantagraph

Land a Holiday Job
Bloomington Pantagraph
Are you entering the holiday season short of cash? You may want to consider a seasonal job. Once Halloween passes and cold weather sets in throughout the country, demand increases for temporary workers to fill in during the holiday shopping season.

and more »

Richmond.com

Kiplinger's Personal Finance: Secrets of 401(k) millionaires
Richmond.com
The number of 401(k) accounts with a balance of $1 million or more rose to a record 168,000 in the second quarter, an increase of 41 percent from a year earlier, according to Fidelity Investments, the nation's largest plan administrator. Although that ...


Congressional gridlock? Maybe not on these personal finance issues
Bend Bulletin
Think there's no hope for bipartisan cooperation now that the Democrats control the House of Representatives and the Republicans have tightened their grip on the Senate? C'mon, have some faith. After all, who would have predicted two years ago that ...

and more »

Chattanooga Times Free Press

Personal Finance: And now some good news about oil
Chattanooga Times Free Press
Return to 1973: the Vietnam War ended, gasoline was 40 cents a gallon, and the United States was the world's largest oil producer, pumping nearly 10 million barrels per day. Those of a certain age will mark that year as the beginning of our long ...

and more »

Ladders

4 personal finance rules that are meant to be broken
Ladders
So where to turn for advice on how to make your money work for you and guidance on where to allocate all your resources? Luckily, there are plenty of apps and personal finance tools that help you budget, manage your money, and provide insights that are ...


Daily Journal Online

See Amazon's HQ2 picks
Daily Journal Online
17 US cities didn't land prizes in the Amazon sweepstakes, but they laid the groundwork to become tech hubs for years to come. Facebook · Twitter · SMS · Email; Print; Save. Load comments. ×. Post a comment as. Emoticons. [smile]; [beam]; [wink]; [sad] ...

Google News

If I Had a Structured Settlement, I Would Use It to Pay for Gas

Has anyone been to the gas pumps lately? Soon $3... Read More

Budgeting the Key to being Financially Stable

Single Mother's in need of Financial GuidanceBudgeting is key to... Read More

Identity Theft ? More Tips on How it Can Be Avoided

Recent security breaches at several credit card companies continue to... Read More

Save Your Money, Dont Give to Charity Scammers

**If it's Spam, it's a Scam!- If it sounds too... Read More

Resources to Help You Learn About and Protect Yourself from Identity Theft

There is a new bill that is being passes, it... Read More

Chex Systems ? Why Every American Needs To Guard His Checking Account With His Life

Most Americans have been brought up to be concerned about... Read More

Budgeting is Essential for a Single Mothers Success

Today many women are struggling with debt and it's even... Read More

How You Feel Affects How You Shop & How Much You Spend

Have you ever stopped to think about how your "mood"... Read More

5 Ways to Absolutely Destroy Your Finances!

Ben Stein has a book called How to Ruin Your... Read More

Save Money on Gas

Gas prices have soared to unimaginable heights of late. Since... Read More

I Want to Buy a Home - Now What?

If you were to ask 100 women "What would you... Read More

10 Money-Saving Tips

1. If you have your haircut every 3 weeks, try... Read More

10 Steps to Take if You Are a Victim of Identity Theft

There have been an estimated 9.9 million victims on America... Read More

Reduce College Debt with Scholarships

Six Scholarship judges were sitting around an oval table. Forms... Read More

Family Money Management: The Importance of Agreement

Are you having problems with debt? Are you afraid to... Read More

Want Your Savings to Earn a Higher Rate of Return? Try Internet Banking

Doesn't it seem like the only impressive numbers we've seen... Read More

How to Balance Your Checkbook ? Get a Calculator and Pencil and You are Ready To Go!

Despite how easy it is to balance a checkbook, very... Read More

Organizing Your Finances - Thinking Outside the (Shoe) Box

If you're like most people, your personal financial records are... Read More

Top 10+ Ways to Jumpstart your New Year?s Finances!

Of course, these don't have to be done in any... Read More

The Wright Place - Finances

Women have a love/hate relationship with money. Most of us... Read More

Eight Ways To Sink Yourself Financially

1. Don't focus on your finances.The reason most people get... Read More

If All Things Are Possible, Why Cant I Balance My Checkbook?

For me, the most terrible time of each month is... Read More

The Joys of Address Labels

Address labels are many things to many different people. If... Read More

Whats The Truth Behind Your Finances?

Between 15 - 20% of people in our country (UK)... Read More

Stretching Your Grocery Dollars

Shopping for groceries is an inevitable fact of our ever... Read More