Bankruptcy Information

Hendel & Collins

A Professional Corporation

Bankruptcy, Insolvency & Commercial Attorneys

The bankruptcy process is governed by Title 11 of the United States Bankruptcy Code. Title 11 is complex and divided into several chapters, some of which apply to bankruptcy cases generally, and some of which apply to specific types of proceedings. Described below are summaries of the specific types of some of the proceedings possible under the Code (section numbers refer to sections in Title 11). Feel free to contact us if you have any questions.

Chapter 7 (Liquidation)

Chapter 7 of the Bankruptcy Code is designed for debtors who do not have the present ability to pay their outstanding obligations. Under a Chapter 7 case, a bankruptcy trustee takes title of most of a debtor’s property (see Section 541); however, a debtor may claim certain property as “exempt”, or outside the reach of creditors (see Section 522). If all property is exempt, the debtor does not lose any assets. The trustee takes any property that is not exempt and liquidates it to pay creditors in accordance with the priority scheme in the Code. In the process, a debtor discharges most debts. There are certain kinds of obligations, however, that are not dischargeable (based on the nature of the debt-see Section 523), and if a debtor is found to have committed certain acts, the discharge may be denied altogether (see section 727). Additionally, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, certain individuals with high incomes may not be eligible for Chapter 7 relief.

Chapter 9 (Municipality Reorganization)

Chapter 9 is reserved for use by a municipality or other governmental subdivision for reorganizing its debts. In terms of flexibility in proposing the repayment of debts, it is similar to a Chapter 11 case.

Chapter 11 (Reorganization)

Chapter 11 is used primarily for the reorganization of a business and its debts, but it can also be used for individuals with complex finances. It can provide for the creative resolution of debts (within the confines of the provisions of Chapter 11) and permits (and even encourages) creditor participation. Creditors must vote to approve a plan of reorganization which sets forth the framework for the treatment of the debtor’s assets and liabilities.

Chapter 12 (Family Farmer)

Chapter 12 is designed primarily to allow family farmers to repay their debts over a period of time from future earnings, and is very similar in many ways to a Chapter 13 case. Certain requirements must be met by a debtor to qualify for a Chapter 12 case; generally, it can be used where a person’s income is derived mostly from a family-owned farming operation.

Chapter 13 (Wage-earner Reorganization)

Chapter 13 is designed for individuals with regular income but who are unable to pay their debts in full on a timely basis. It permits individuals the opportunity to repay such debts (in part or in full, depending on the person’s circumstances) over a 3 to 5 year period. The availability of Chapter 13 is limited to those whose debts do not exceed certain levels, and a plan of reorganization must be approved by the Court. The plan typically calls for monthly payments to be made to a Chapter 13 trustee, who then periodically disburses the funds to creditors. Chapter 13 can also be used to “cure” an arrearage on a secured loan, such as a home mortgage, and therefore possibly avoid a foreclosure. Additionally, debtors completing a Chapter 13 case can discharge some debts that are not dischargeable in a Chapter 7 case.

Chapter 15 (Ancillary and Cross-Border Insolvencies)

Click here for excellent synopsis by the Federal Judiciary of Chapter 15 of the Bankruptcy Code.