Navigating bankruptcy roads

The various bankruptcy chapters: Know your options

Most people in the United States are familiar with the concept of going bankrupt. However, the majority of those people don’t understand the actual process of filing for bankruptcy. Although it’s not something people like to think about, bankruptcy can help a person get rid of any debt they have or make a feasible plan to repay it. Every person’s circumstances are different, which makes understanding the different chapters of bankruptcy extremely important. There are six chapters of bankruptcy in the United States:

  • Chapter 7

  • Chapter 9

  • Chapter 11

  • Chapter 12

  • Chapter 13 

  • Chapter 15

Out of all these options, chapter 7 and chapter 13 are the most common types of bankruptcy filed. That being said, it’s still worthwhile to know how the other bankruptcy chapters work. Knowledge is power and you deserve to feel empowered when determining which form of bankruptcy is right for you. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, sometimes referred to as liquidation bankruptcy, is the most common and basic type of bankruptcy in the United States. This particular bankruptcy chapter provides liquidation of an individual’s property and then distributes it to creditors. Individuals are allowed to keep “exempt property.” Businesses that file for chapter 7 bankruptcy may have the courts provide them with a trustee who will take over operations for a period of time. In general, the trustee will take charge of asset liquidations and proceeds.

Chapter 9 Bankruptcy

Chapter 9 bankruptcy is for municipalities i.e. cities, towns, counties and school districts. Municipalities that choose to go the chapter 9 bankruptcy route will earn protection from creditors while they develop a plan for adjusting their debts. In 2013, the city of Detroit filed for chapter 9 bankruptcy, making it the largest city in the history of the U.S. to file for bankruptcy.

City skyline

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a reorganization bankruptcy that is available to both individuals and businesses. In contrast to chapter 7, the debtor remains in control of business operations and doesn’t sell off all of its assets. Businesses can attempt to change the terms on debts such as interest rates and values of payments. Filing for chapter 11 allows a business to come out of bankruptcy as a healthy business.

Chapter 12 Bankruptcy

This form of bankruptcy is designed for “family farmers” and “family fisherman” that are under financial distress. Under chapter 12 bankruptcy, the person in debt comes up with a plan to pay back creditors over the course three to five years.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, otherwise known as the “wage earner plan”, allows an individual who is receiving an income on a regular basis to develop a plan for paying back parts – or all – of their debts. Unlike chapter 7, filing for chapter 13 bankruptcy allows individuals to avoid foreclosure on their houses — a major advantage for many who are struggling financially.

Chapter 15 Bankruptcy

Chapter 15 bankruptcy, added to the U.S. bankruptcy code in 2005, is designed to deal with cases that involve more than one country. The main goal is to provide cooperation between a foreign debtor, foreign courts, and the U.S. bankruptcy courts. Therefore, a foreign debtor who had assets in a number of countries would file chapter 15 bankruptcy.

Now that you have a basic understanding of the six chapters of bankruptcy, you’ll know you have options if there comes a time when filing for bankruptcy is your best option. Before you take any course action, it is wise to speak with a bankruptcy attorney who has a proven reputation — a Denver bankruptcy attorney like Matt McCune

Feeling stressed about your financial situation? Get the conversation started, explore your options further, and let some of the weight be lifted off your shoulders.