Monday, September 21, 2009

Different Bankruptcy Chapters

The current bankruptcy laws, enacted by Congress in 1978, are known as the US Bankruptcy Code. The Code is set forth in Title 11 of the US Code. It consists of nine chapters: 1, 3, 5, 7, 9, 11, 12, 13 and 15. Chapters 1, 3 and 5 are of general applicability. Chapters 7, 9, 11, 12, 13 and 15 each deal with a particular type of bankruptcy proceeding. The Code refers to the financially troubled person or entity in need of bankruptcy assistance as the "debtor."


Debtors file bankruptcy for a variety of reasons, including divorce, job loss and health problems. A debtor need not be insolvent to file for bankruptcy. Debtors are entitled to a respite from most collection activities upon filing bankruptcy, pursuant to various stay provisions called the "Automatic Stay." By filing for bankruptcy, debtors may obtain a discharge of personal liability from many debts and may be able to restructure others.

There are two basic types of bankruptcy proceedings: liquidations and reorganizations. In liquidations, governed by chapter 7, the debtor's nonexempt pre-filing assets are sold for the benefit of creditors. In exchange for surrendering these assets, the debtor generally obtains a discharge of personal liability for prebankruptcy debts and may enjoy assets acquired after the filing.

Chapters 11, 12 and 13 involve various types of reorganization or payment plans. In bankruptcy reorganizations, the debtor's assets are not sold, unless otherwise provided for in the plan. Indeed, many debtors choose reoganizations in order to keep pre-bankruptcy assets. Individual debtors, for instance, often file chapter 13 cases in order to save their homes from foreclosure. Reorganization bankruptcies allow debtors the opportunity to restructure debts and to pay them, possibly in part and not in full, through a plan funded by post-filing income. A debtor in a reorganization bankruptcy may obtain a discharge of most pre-confirmation debts that are provided for, but not paid in full, in the plan. Source: American Bankruptcy Institute.


Warmest Regards,

Bob Schaller


Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm

Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.

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