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Six Types of Bankruptcy to Resolve Indebtedness

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Under the U.S. Bankruptcy Code there are six types of bankruptcy. They may be found under Title 11.

For those facing the possibility of bankruptcy, it may help to know that there are six types that may be considered. The common types are Chapter 7, Chapter 11 and Chapter 13. The others are Chapter 12, Chapter 9 and Chapter 15. The last three types of bankruptcy are rarely filed.

Chapter 7 often involves liquidation, and businesses or individuals may file for this type of bankruptcy. To do so, the debtor needs to meet a means test to determine if they are eligible to file. Under a Chapter 7 filing, there is a court-appointed trustee/administrator that takes possession of non-exempt assets, and liquidates them. The proceeds of the liquidation sale are used to pay creditors.

A discharge under Chapter 7 typically happens within a few months after the initial petition is filed. There are a high percentage of Chapter 7 bankruptcies where all assets are secured and/or exempt. If that is the case, the file is closed, which means that no property was sold and therefore, there was no money to give to creditors. This is a situation that needs to be discussed with a competent Iowa bankruptcy lawyer.

For people that have a regular income, or for those who do not qualify for Chapter 7, Chapter 13 may be a good option. In this type of bankruptcy, the debtor creates a plan to repay their debts, typically over a three to five year time span. The plan must be approved by the Court. With a Chapter 13 bankruptcy filing, the individual often retains their assets and makes payments under the proposed plan to the trustee. The trustee pays the creditors.

While the debtor is paying off their debt under a Chapter 13 bankruptcy, they are protected from any creditor actions, garnishments and/or lawsuits. In order to have a Chapter 13 bankruptcy discharged, all payments under the plan must be made.

A Chapter 11 bankruptcy is considered to be a reorganization, and is often used by businesses that wish to stay in operation as they are paying creditors under the auspices of a court-approved reorganization plan. Once the plan has been approved by the court, the debtor begins to repay a portion of their debts, while discharging others.

With an approved plan in place, the debtor may revamp/reorganize their business and take action to terminate contracts or other leases and begin to recover assets. In doing so, they should become more profitable and be able to stay in business.

Chapter 12 bankruptcies deal with debt relief for family fishermen and farmers who have a regular income. In many respects, Chapter 12 is similar to a Chapter 13 bankruptcy. During the course of a Chapter 12 bankruptcy, the business person continues to run their operation, and makes payments according to a court-approved repayment plan that usually spans a three to five year period. Again, a bankruptcy trustee takes the money and disburses it to creditors.

Chapter 9 is similar in nature to Chapter 11. However, the debtor is typically a municipality. For example, school districts, villages, counties, towns and cities may file under this Chapter.
Chapter 15 is the newest type of bankruptcy, and was added to the Bankruptcy Code after the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (2005). Chapter 15 deals with cross-border bankruptcy, which means debtors and/or their property, are subject to U.S. laws and the laws or one or more foreign countries.

If you are not certain what type of bankruptcy you qualify for, discuss this with an experienced Iowa bankruptcy lawyer. It is their job to stay on top of the latest changes in bankruptcy law.

Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit http://www.iowachapter7.com or call 1.877.888.1766.

Posted on Monday, February 27th, 2012 and filed under Bankruptcy.
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