There are 6 different types of bankruptcy according to the United States Bankruptcy Code. Each one of them is named after the chapter in the code where it is described. Hence, we have the following bankruptcy types : Chapter 7 ( liquidation ), Chapter 9 ( adjustment of debts of a municipality ), Chapter 11 ( reorganization ), Chapter 12 ( alteration of debts of a class farmer or fisherman with regular annual income ), Chapter 13 ( alteration of debts of an individual with regular income ) and Chapter 15 ( accessory and other cross-border cases ). These chapters apply to different circumstances and entities. The most common bankruptcy types people normally resort to are Chapter 7 and Chapter 13 for individuals and Chapter 7or chapter 11 for companies. In this mail, we are going to summarize the most common aspects related to each bankruptcy option .
chapter 7 Bankruptcy is typically a company ? south end haunt when the occupation has no probability to survive. This process is besides known as liquidation. A business normally files for chapter 7 when it has debts that can no long be restructured. furthermore, a debtor that is about to file for this type of bankruptcy is normally lacking significant assets .
If the campaign to reorganize the party exceeds the owner ‘s capabilities, chapter 7 is an allow choice. In this bankruptcy form, a court-appointed regent will be in appoint of canceling the ship’s company ‘s debts by selling its assets and distributing the money among creditors .
After all the debts are covered, a sole owner will normally be discharged which means that he or she will be released from liability regarding their debts. If a pot or a partnership is filing for chapter 7, they ca n’t be discharged. however, it ‘s crucial to keep in take care that not all debts can be discharged and a lien on property is not canceled after the dispatch.
chapter 7 is the most popular character of bankruptcy among individuals who get the change to start afresh after filing. This chapter is the most commodious solution when the debtor has no possibility of repaying the money he or she owes, there are no cosigners and the creditors ‘ legal action is impending. The process is alike for individuals ; their nonexempt assets are collected, turned into cash and the money is then divided among creditors according to the provisions of the Bankruptcy Code. typically, at the end of the operation, the debtor will be discharged and he or she will no longer be personally liable for the remaining dischargeable debts.
chapter 11 bankruptcy is normally preferred over other bankruptcy forms when there is inactive hope of getting the business back on lead. In this chapter, the aim is to help the caller recover through reorganization .
chapter 11 ensures clientele continuity during the bankruptcy process. Under this chapter, the court might appoint a regent. But most of the times, the business owner is allowed to continue operating the business as a debtor in possession ( DIP ). This bankruptcy form is carried on according to a reorganization plan which is filed by the debtor. In this plan, the company describes how it is going to repay its creditors. If the regent ? randomness committees have been appointed, they will represent the creditors ? interest and help the debtor develop the design. The plan will be reviewed by the creditors whose vote is required. The plan besides requires the court ‘s approval in order to be implemented. This action might take a while ; sometimes companies have to wait for more than a year to receive the approval .
After the plan is validated, the debtor can start reorganizing the business by keeping its essential assets and paying creditors out of the net income they continue generating. even if the court approves the reorganization plan and the debtor continues managing his or her company, any major business decision they want to implement will besides require the court ‘s approval .
Any business entity is entitled to file for this bankruptcy chapter and they usually choose it when their debts exceed the limits established by Chapter 13 ( $ 1,184,200 for secured debts and $ 394,725 for unbarred debts ). typically, adult companies opt for this chapter. The reason why little businesses avoid it is that it costs excessively much to obtain the plan approval. furthermore, it often takes a long fourth dimension for the process to wrap up ; somewhere between 6 months and 2 years .
After a chapter 11 bankruptcy is completed, companies typically gain the advantage of reduced debts and newly organized business. Although chapter 11 is normally used by companies, it is besides available for individuals.
This bankruptcy chapter is a reorganization form available for consumers. This option helps people who earn a regular income give off their debt. chapter 13 bankruptcy is governed by a repayment plan which the debtor must file and the court must approve. This design contains the course of legal action that the debtor will take in ordain to repay his or her debts. The total of money the debtors has to pay back varies based on their gross, their debts and the property they possess. Under this chapter, the debtors get 3 to 5 years to pay back the money they owe. After the plan is approved by the court, the debtor starts paying creditors through a regent. Once the blessing is obtained, the creditor is granted security and creditors will no long be able to pursue a lawsuit against him or her. After the plan is completed, the debtor is discharged of the remaining debt. chapter 13 is besides available for those who own a lone proprietorship. Some of the advantages of chapter 13 are :
- the debtor’s ability to save their house from foreclosure
- the possibility to reschedule and extend secured debts
- the protection granted to third parties, like co-signers, who are responsible for consumer debts
- the lack of direct contact between debtor and creditors; debtors send the payments to the trustee who then pays the creditors
chapter 13 is besides useful when the debtor has certain debts that ca n’t be discharged through chapter 7 like taxes or child digest, liens that exceed the value of their assets. This bankruptcy type is besides appropriate when debtors fail to file their taxes or to cover their house expenses for a considerable period .
chapter 12 is a peculiar character of bankruptcy option ; it is available to a restricted sphere of activity ; small farm or fishing companies. This chapter enables syndicate enterprises that activate in these domains to restructure their business and keep off liquidation. Chapter 12 functions similarly to Chapter 13. Some of the benefits entailed by this chapter are:
- most companies can continue their business operations after they’ve filed for Chapter 12
- although a trustee is appointed, their duties are restricted; checking documents, monitoring operations, plan payments collection and disbursement
- companies filing for this chapter have 90 days to come forward with a repayment plan and the deadline can sometimes be extended
- the debtor gets 3 to 5 years to pay off his or her debts
- debtors can benefit from a cram down for their secured debts
chapter 9 Bankruptcy is available for municipalities such as cities, towns, villages, counties, taxing districts, municipal utilities or school districts that require reorganization. This chapter aims to support municipalities that are faced with fiscal difficulties and protect them from creditors. The municipality filing for chapter 9 will develop and implement a plan to help it adjust debts. There are three common methods adopted by municipalities that try to reorganize their debts: getting longer debt maturities, accessing a new loan to refinance the debt or getting an interest reduction. Unlike other bankruptcy types, chapter 9 bankruptcy does n’t involve assets liquidation and distribution among creditors. chapter 9 Bankruptcy is entirely available for municipalities that are authorized to be a debtor, bankrupt and bequeath to implement a debt adaptation plan .
chapter 15 is a relatively new mannequin of bankruptcy ; it has been available since 2005 and it enables foreign debtors to file for bankruptcy under the US laws. This chapter is basically an borrowing of the international bankruptcy laws provided by the United Nations Commission on International Trade Law. few cases are filed per annum under this chapter.
Chapter 15 has been added to the Bankruptcy Code to ensure coordination for cross-border insolvencies and to provide a faster and more efficient means of solving them. To commence this procedure, a prayer is filed by an appointed foreign spokesperson for the recognition of the foreign continue. After the court hearing, the foreign proceed is recognized, and the representative can seek relief .
To understand all the benefits and drawbacks of each bankruptcy chapter and how they can affect your business or your personal estate, you should talk to a lawyer who specializes in this area. An adept will help you choose the most appropriate routine based on your necessities .
At the Law Offices of Kevin S. Neiman, we have the necessity experience and expertness to help you file any bankruptcy chapter. We will guide you every pace of the manner and makes indisputable you get the best consequence. You can contact our specialists by calling us or visiting our agency in Denver .