Decoding the Four Bankruptcy Chapters

  • Chapter 13

Decoding the four Bankruptcy Chapters

Bankruptcy is a challenging period and there are certain legal and ethical obligations during this period. To standardize the process and to ensure a fair system for all parties involved, there are some predefined codes or chapters that allow for simpler decision making and fair justice. The four chapters in focus today are suitable for businesses as well as individuals. Each chapter can be explained with their application as follows-

Chapter 13

Chapter 13 is a bankruptcy code that is specifically designed for individuals or families. The businesses or the sole proprietors shall not be eligible to file bankruptcy via Chapter 13. This chapter is applicable only for single and married bankruptcy filers. Chapter 13 is basically a future payment program that dedicates future disposable income to existing debts. The future debt repayment plan may last up to 5 years depending on your income. If your household income for a family is below the median income of your state, you might have a future debt payment plan for 3 years. If it is more than the median income the plan shall be of 5 years. You might end up paying a good portion of your priority debts which includes, income tax dues, child support, secured loan dues like mortgage, etc.

Some of the debts that may include payday loans, credit card dues, etc., which are categorized as unsecured debts may be released depending on different circumstances. To know more about Chapter 13 bankruptcy filing, and to clear all your doubts and questions, log on to Recovery Law Group.

Chapter 11

Chapter 11 is designed for businesses. Large corporations often use Chapter 11 bankruptcy to prevent shut down of their businesses. Chapter 11 bankruptcy code is probably one of the most expensive Chapters and hence, small businesses are quite allergic to it. It can be also used by individuals who do not qualify for Chapter 13 due to the debt thresholds. Under Chapter 11 the lenders try to identify ways of recovering their debts from the bankruptcy filer by renegotiating the terms and by creating a viable plan for maximum debt recovery. Many factors like sale of less used/underperforming assets need for change in leadership, adding more efficiency to the organization operations, etc., are into consideration while restructuring the loan terms and conditions.

The filer must demonstrate a convincing plan for repaying the debts. It is a must for such a proposal to be approved by all the lenders and creditors as only court approval won’t be enough. If the filer is unable to present a sustainable plan, a lender/creditor can propose a plan for debt repayment which can then be passed by a voting test. The filer gets sufficient time to enact the approved plan and repay debts, which is why large corporations prefer Chapter 11.

Chapter 12

Chapter 12 has been specifically designed for people engaging in the fisherman and/or farming activities. Chapter 12 works very closely with the Chapter 13 plan with the only difference being the flexibility. The farming and fishing activities are seasonal, and one might see inconsistent income for almost half the year. The filer in this scenario has about 3 months or 90 days to put forward a payment plan for repaying the debts in the span ranging from 3 years to 5 years. Unlike Chapter 13, the payments can be made seasonally instead of monthly obligations. The Chapter 12 repayment plan can even release the liability of secured debts, based on the maximum repayment capacity over the next 5 years.

Chapter 9

The Chapter 9 code has been specifically reserved for municipalities, utility business, tax districts, government units, etc. Chapter 9 is pretty similar to Chapter 11. A plan has to be put forward by the filer in order to repay the debts. This may include leadership alterations, sale of unused assets, optimizing efficiency, etc. The only distinction is that in Chapter 9, the lenders or creditors are not allowed to propose restructuring plans. However, they can convey their objection or dissatisfaction on the plan or proposal put forward by the Chapter 9 bankruptcy filer. To know about more chapters or understand these chapters better, contact the professionals at +1 888-297-6203.