A Brief Overview of the Common Chapters of Bankruptcy
There are several different types of bankruptcy proceedings, and which one is best in a debt situation is usually determined by the specific circumstances of an individual or a business. In this blog, we outline the most common bankruptcy chapters to give you a better idea as to which one might fit your situation.
Personal bankruptcy filings
The most common type of bankruptcy filed in the U.S., Chapter 7 protects people from creditors and stops collection calls. In some cases, when those in debt have few assets, their debt is wiped clean and they are given a fresh financial start for rebuilding their credit. When there are assets involved, those assets might be liquidated by a trustee to cover at least a portion of the existing debt. The rest will be discharged. Those who file Chapter 7 must meet a certain income limitation in order to qualify.
Those who file for Chapter 13 bankruptcy are obligated to repay their creditors, which means they must have sufficient monthly income to pay secured debt in full, and unsecured debt in an amount equal to what a trustee would have received if the item had been sold as part of a Chapter 7 bankruptcy. The bankruptcy plan usually establishes a 3-5 year window for repayment.
Business bankruptcy filings
Chapter 9 bankruptcy is limited to municipalities and is a way to help cities restructure their debt. In 2013, Detroit became the largest city in U.S. history to file for Chapter 9 bankruptcy. However, the city continues to struggle to recover from its financial woes. A story appearing in late February 2019 revealed that 911 callers often wait for hours for help to arrive due to a limited number of available ambulances.
Chapter 11 bankruptcy is a way for businesses to retain their assets while restructuring their debts so repayment is easier. Companies often continue to operate after filing Chapter 11, and in many cases come out much stronger than before. Companies that have filed Chapter 11 so far in 2019 include the clothing retailer Charlotte Russe, Payless ShoeSource, regional department store Shopko, retailer Things Remembered, and Pacific Gas and Electric Company.
Chapter 12 bankruptcy is aimed specifically at family farmers and fishermen, and was born out of the financial struggles suffered by the two industries during the recession of the 1980s in which fuel prices rose. Chapter 12 bankruptcy is more flexible in that it allows those filing to make payments in response to the seasonal highs and lows of both. Chapter 12 bankruptcy filings generally allow 3 to 5 years for repayment of debt.
As of 2018, to qualify for Chapter 12 bankruptcy, the total debt for farmers must not exceed $4,152,150, with 50% of the debt coming from the farming operation itself, while the debt for family fishermen must not exceed $1,924,550, with 80% of the debt coming from the family fishing operation.
Learn More About Your Bankruptcy Alternatives
If you are considering bankruptcy, Maxwell Dunn can help you determine what the best option might be in your particular personal or business situation. Set up an appointment with a member of our team to learn more about what might be right for you.