Bankruptcy Information:
BANKRUPTCY CHAPTER 7, 11, 13 and 9 and 12 explained
by the U.S. Bankruptcy Court:
Chapter 7, entitled Liquidation,
contemplates an orderly, court-supervised
procedure by which a trustee collects the assets of the debtor’s estate, reduces
them to cash, and makes distributions to creditors, subject to the debtor’s
right to retain certain exempt property and the rights of secured creditors.
Because there is usually little or no nonexempt property in most chapter 7
cases, there may not be an actual liquidation of the debtor’s assets. These
cases are called “no-asset cases.” A creditor holding an unsecured claim
will get a distribution from the bankruptcy estate only if the case is an asset
case and the creditor files a proof of claim with the bankruptcy court. In
most chapter 7 cases, the debtor receives a discharge that releases the
debtor from personal liability for certain dischargeable debts. The debtor
normally receives a discharge just a few months after the petition is filed.
Chapter 13, entitled Adjustment of Debts of an Individual With Regular
Income, is designed for an individual debtor who has a regular source of
income. Chapter 13 is often preferable to chapter 7 because it enables the
debtor to keep a valuable asset, such as the life of the plan. Unlike chapter 7,
the debtor does not receive an immediate discharge of debts. The debtor must
complete the payments required under the plan before the discharge is
received. The debtor is protected from lawsuits, garnishments, and other
creditor
action while the plan is in effect. The discharge is also considerably
broader (i.e., more debts are eliminated) under chapter 13 than the discharge
under chapter 7.
Chapter 11, entitled Reorganization, ordinarily is used by
commercial enterprises
that desire to continue operating a business and repay creditors concurrently
through a court-approved plan of reorganization. The chapter 11 debtor
has the exclusive right to file a plan of reorganization for the first 120 days
after the order for relief and must provide creditors with a disclosure
statement
containing information adequate to enable creditors to evaluate the plan.
The court ultimately approves (confirms) or disapproves the plan of
reorganization.
Under the confirmed plan, the debtor can reduce its debts by repaying a portion
of its obligations and
discharging others. The debtor can also terminate burdensome contracts and
leases, recover assets, and rescale its operations in order to return to
profitability.
Under chapter 11, the debtor normally goes through a period of consolidation
and emerges with a reduced debt load and a reorganized business.
Chapter 12, entitled Adjustment of Debts of a Family Farmer with Regular
Annual Income, provides debt relief to family farmers with regular annual
income. The process under chapter 12 is very similar to that of chapter 13
under which the debtor proposes a plan to repay debts over a period of time—
no more than three years unless the court approves a longer period, not
exceeding five years. There is also a trustee in every chapter 12 case whose
duties are very similar to those of a chapter 13 trustee. The chapter 12
trustee’s disbursement of payments to creditors under a confirmed plan parallels
the procedure under chapter 13. Chapter 12 allows a family farmer to
continue to operate the farm while the plan is being carried out.
Chapter 9, entitled Adjustment of Debts of a Municipality, provides
essentially for reorganization, much like a reorganization under chapter 11.
Only a “municipality” may file under chapter 9, which includes cities and
towns, as well as villages, counties, taxing districts, municipal utilities, and
school districts.
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