Most people are only aware of the Chapter 7 and 13 Bankruptcy Chapters. According to the Bankruptcy Code of the United States however, there are six chapters in all, found at Title 11. By being aware of them all, you will be at a much better position to decide which chapter best applies to the situation.
Chapter 7 bankruptcy is the most basic type and the one commonly taken by many individuals. In a Chapter 7 filing, all the unsecured assets are sold off and the proceeds are used to pay off the outstanding debts. It doesn’t matter if the proceeds aren’t sufficient to pay all the damages – the bankruptcy clears the individual of the rest.
Chapter 9 bankruptcy deals with municipality bankruptcy such as those that happened with Jefferson County, Alabama. This is the process followed by the federal government when dealing with debts for an entire municipality. This chapter comes with very special characteristics because they involve the State government. Hence, municipalities have the capacity to renegotiate pension and benefit packages.
Chapter 11 bankruptcy typically used by businesses to handle problems with the financial sector of the company. If the business has sufficient debts, Chapter 11 provides ways for them to pay the creditors without completely liquidating the business. Think of it as a reorganization of the company funds to ensure that the finances are adequately proportioned for payment.
Chapter 12 bankruptcy deals specifically with the farmer and fishermen sector. The system is comparable with Chapter 13 but with a few privileges available only to the fishing and farming community. Some of their perks include a higher debt ceiling and better exemptions.
Chapter 13 bankruptcy is usually applicable for individuals with disposable income not sufficient enough to cover their monthly debts. This is a form of rehabilitation program wherein an individual enters a prepayment plan with the creditors. This gives them the chance to keep some of their assets in exchange with the promise of paying off the necessary costs on a monthly basis.
Chapter 15 bankruptcy deals exclusively with international bankruptcy cases. It helps foreign creditors recover funds from their US based borrowers. It makes use of the Model Law on Cross Border Insolvency which was started by the United Nations Commissions on International Trade. Initiating Chapter 15 is usually more cost-efficient than simply starting an independent bankruptcy investigation within the United States. Since the situation is unique for a Chapter 15 filing, the extent of the law is so much more than other Chapters. For example, under this decree the US courts have the right to turn over assets as well as to issue a subpoena and other orders pertaining to the situation.
Exceptions to the Rule
Note that even with varying types of Bankruptcy Chapters, the United States laws remain strict when it comes to approval of claims. This is exactly why the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) have been set up, ensuring that only those who really need to file will be accepted.
The BAPCPA was signed under President Bush after eight years of being discussed in congress. Finally, the ruling was in effect stating that only those falling beneath the State median income are allowed to file for total bankruptcy. Those who are capable of paying even a portion of their debts will be required to meet the payments.
Also note that some Bankruptcy Chapters allow individuals to keep certain properties for their own rather than have it liquidated. This is usually something that everyone involved has to agree about before approval. More often than not, individuals need to hire lawyers in order to defend their right for exemption.