What do all the different Chapters mean?

Bankruptcy Law as a whole is a combination of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Federal Rules of Civil Procedure, State Law, Federal Law, and Case Law developed in the courts.  The explanations below are just a brief overview; every chapter of the Bankruptcy Code is extremely complex. It is advisable that no matter how simple your situation may seem, the bankruptcy code is full of traps and you should hire a competent attorney that will make sure that you receive the best possible outcome.

Chapter 7: Liquidation
This is by far the most common Chapter to file under. Debtors who file under Chapter 7 do not have to pay back any of their general unsecured debt from their future earnings, but at the same time put themselves at risk of the trustee liquidating their non-exempt property to pay off creditors. Individuals, married couples, and businesses that want to cease operating may file under Chapter 7. However, since 2005 Congress has made the requirements of eligibility more strict and some debtors who would like to file under Chapter 7 are forced into Chapter 11 or 13. A run-of-the-mill Chapter 7 bankruptcy lasts about 4-5 months from the time the case is filed to when you receive your discharge and the case is closed.

Chapter 9: Municipalities
This Chapter is reserved for cities, towns, counties, and other municipal entities who have become insolvent and need the assistance of restructuring through a Chapter 9 Plan. Notable cases include Orange County, San Bernardino County, Desert Hot Springs, Stockton, Mammoth Lakes, and most recently Detroit, MI.

Chapter 11: Restructure/Reorganize
This chapter is reserved for business that want to continue operating and are in need of restructuring their debts and for individuals who want to retain their property and make a plan of repayment but are not eligible for Chapter 13 because they have too much debt.

Chapter 12 – Farmers/Fisherman
This is a very uncommon form of bankruptcy relief (in 2014 there was not a single Chapter 12 filed in the Riverside District, compared to 13,416 Chapter 7 cases that were filed). It is similar to a Chapter 13 with the exception that instead off making monthly payments, the debtor makes annual payments. The reasoning behind Chapter 12 is that farmers and fisherman to not receive stable monthly income, but rather their income fluctuates with the seasons, and other uncontrollable factors. Chapter 12 debtors still pay back some of their debt like in a Chapter 11 or 13, but their payments are not even monthly payments and fluctuate with their income.

Chapter 13: Repayment Plan
This Chapter is the second most common type of bankruptcy. Chapter 13 is completely voluntary (interesting fact: the reason that Chapter 7s cannot be voluntarily dismissed and Chapter 13s can is due to the 13th Amendment that prohibits slavery and involuntary servitude. If you can’t dismiss a Chapter 13, that means that you would be forced to continue working). Some of the reasons that people file under Chapter 13 are: they have too much income to be eligible for Chapter 7, they have non-exempt property that they want to retain, they have fallen behind on their payments of secured debts (typically a home or car) and want to keep the property, or a variety of other reasons. In a Chapter 13, you will need to create a feasible repayment plan and make monthly payments over the course of 3 to 5 years.

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