Bankruptcy Information

∙ Chapter 7

This is, by far, the most popularly declared bankruptcy - more than sixty percent of all American bankruptcies are filed under Chapter 7 protection - and also what most people think about when they hear the term.  Chapter 7 essentially eliminates all unsecured debts (those loans not associated with any collateral like car loans or home mortgages) with a few exceptions (like student loans or recent tax liens) for both individuals and businesses that qualify under certain federally mandated income guidelines.  It's known as a liquidation program.

∙ Chapter 13

The second most common sort of bankruptcy among individuals is Chapter 13 protection - known as a rehabilitation program.  In the simplest view, Chapter 13 bankruptcies re-structure debts, secured and unsecured, within a set payment plan over three to five years that typically lowers or eliminates interest rates and prevents debt collection harassment, vehicle repossessions, property seizures, and home foreclosure. 

∙ Chapter 11

Chapter 11 protection is essentially the same as Chapter 13 protection - structuring debt loads in order to stave off collection while both ensuring the filers property will not be seized for auction and, through a set payment program of fixed length, increasing the speed and ease of repayment - except the program only applies to businesses.  The only difference, perhaps, is that (somewhat controversially) Chapter 11 bankruptcy allows the business or corporation to continue their operations within the repayment system without threat of creditors.

∙ Chapter 12

Neatly enough, Chapter 12 bankruptcy protection splits the difference between Chapter 11 and Chapter 13 - it offers individuals similar protection to Chapter 11 debt rehabilitation program but also allows them certain unique benefits to maintain property and possessions.  Since the program only applies to family farms and family fishing business, only a few hundred Americans per year take advantage of Chapter 12 bankruptcies.

∙ Chapter 9

Another version of the Chapter 11 debt re-habilitation, this applies solely to publicly owned utilities and municipalities.  As you'd imagine, though Orange County's 1994 filing did make headlines, this form of bankruptcy is fairly rare and, since constitutional guidelines limit the powers of the federal government with respect to local economies, far less effective.

∙ Chapter 15

This hotly debated addition to the bankruptcy code regards the varying protection of foreign debtors as well as providing more detailed guidelines for courts to consider when American debtors owe foreign creditors.  Virtually every such case depends upon the individual court's discretion (and to a degree the foreign country concerned) and how the judge assigned interprets the United Nations Cross Border Insolvency laws.  Any borrower that finds themselves with debts or creditors that cross national boundaries would do best to consult an attorney as the specific repercussions of such filings are impossible to simply or easily summarize.

There are other individual statutes on the books, and the government debates changes every day.  For example, The Servicemembers Civil Relief Act or SCRA of 2003 allows a limited form of protection (though by an entirely different part of the United States Code) against default judgment to military personnel.  For reasons that should seem clear, no one resource could ever hope to exhaustively tackle each aspect of bankruptcy, but we hope the preceding has at least provided a start to investigating the details of bankruptcy programs.  At the end of the day, it's up to each borrower to properly educate themselves so that they may approach an attorney (or, as sometimes happens, submit their own filings) to discuss bankruptcy or the various bankruptcy alternatives with sufficient information to make an intelligent decision regarding their financial destiny.