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The Chapters of Bankruptcy

The bankruptcy options are contained in Chapters 7, 9, 11, 12, and 13 of the U.S. Bankruptcy Code.

Bankruptcy Law, Organized

All of the “general and permanent laws of the United States” are contained in the United States Code. The U.S. Code is divided by subject matter into 53 “Titles,” mostly organized alphabetically. So Title 11 about “Bankruptcy” comes right after Title 10 about the “Armed Forces” and right before Title 12 about “Banks and Banking.”

Title 11, commonly referred to as the Bankruptcy Code, is divided into Chapters. Some of these Chapters contain the statutes that apply to one specific type of bankruptcy option created by Congress. So those options are known by their Chapter numbers. For example, Chapter 7 of Title 11 contains the statutes about what is commonly referred to as “Chapter 7 bankruptcy.” The same with Chapters 9, 11, 12, and 13.

The statutes within other Chapters of Title 11—Chapters 1, 3, and 5—apply more broadly to all the above bankruptcy options.

The Bankruptcy Options of Chapters 7, 9, 11, 12 and 13

Each one of these Chapters is designed for a certain kind of debtor in certain kinds of situations:

Chapter 7: Often referred to as “straight bankruptcy,” or “liquidation,” it is the most commonly filed option for individuals and couples. Usually debtors retain most or all of their assets. Chapter 7 “discharges” (permanently writes off) most types of debts. It provides limited options for dealing with collateral such as real estate, vehicles, and other purchased goods. Can also be filed by corporations, partnerships and other business entities for orderly liquidation of final assets. Consumer Chapter 7 cases are usually completed within four months, longer if the trustee collects assets and distributes their proceeds to creditors.

Chapter 9: The “adjustment of debts of a municipality,” involves the financial restructuring of a city, county, or other subdivision of a state. These are quite rare. Usually no more than a dozen cases are filed each year in the entire country.

Chapter 11: A financial “reorganization,” primarily by corporations and other business entities. Can be used by individuals, primarily when unable to file Chapter 13 because of exceeding the debt limits. May have some other advantages for individuals, but is very seldom used outside the business context because it’s much more complex and expensive.

Chapter 12: A specialized “adjustment of debts of a family farmer or fisherman with regular annual income.” Is a blending of Chapters 11 and 13, in some respects more powerful and flexible than those options. Can only be used by farmers, ranchers, dairy owners, poultry and livestock producers, and fishermen. Preserves the debtor’s farm or business by reducing and restructuring its debt.

Chapter 13: The “adjustment of debts of an individual [or couple] with regular income.” Involves preparing and getting court-approval of a 3-to-5-year payment plan. The Chapter 13 plan often radically reduces both the amount of debt the debtor pays each month and pays overall. Can only be used by individuals or married couples, not by corporations or business partnerships. Provides many advantages not available under Chapter 7, especially in retaining collateral and in managing special debts like both older and newer income taxes, child and spousal support, and other divorce debt.

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