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What Are The Different "Chapters" In Bankruptcy?

Chapter 7 Bankruptcy:

Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as "straight bankruptcy" or "liquidation" cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property exempt.

(1) In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts.

(2) Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership's or corporation's debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.

Chapter 9 Bankruptcy:

Chapter 9 is only for municipalities and governmental units, such as schools, water districts, and so on.

Chapter 11 Bankruptcy:

Chapter 11 is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization which must be approved by the court. In addition to the filing fee paid to the Clerk, a quarterly fee shall be paid to the U.S. Trustee in all chapter 11 cases.

There is no debt limit under Chapter 11. To qualify as a "small business chapter 11," the debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of its secured plus unsecured debts must be less than $2,190,000. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney.

Chapter 12 Bankruptcy:

Chapter 12 offers bankruptcy relief to those who qualify as family farmers or family fishermen. There are debt limitations for chapter 12, and a certain portion of the debtor's income must come from the operation of a farming or fishing business. Family farmers and family fishermen must propose a plan to repay their creditors over a period of time from future income and it must be approved by the court. Plan payments are made through a chapter 12 trustee who also monitors the debtor's farming or fishing operations while the case is pending.

Chapter 13 Bankruptcy:

Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,347,550 ($336,900 in unsecured debts and $1,010,650 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a percentage fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.

Chapter 15 Bankruptcy:

Chapter 15 is a new chapter to deal with insolvency cases involving debtors, assets, claimants, and other parties in interest in more than one country. Due to their complexity, these "cross border insolvency cases" will always need a lawyer.

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