Bankruptcy is a right guaranteed and codified in the Constitution. Every citizen and business has a right to protection of the federal bankruptcy courts, and to have protection from their creditors. Many people are not aware of or are confused by the different types of bankruptcy and the qualifications required for each one. While many are familiar with the terms Chapter 7, Chapter 11, and Chapter 13, they are unaware of Chapter 12, or Chapter 15, and the bankruptcy qualifications needed for each type. Let’s start off by breaking down the different types of bankruptcy.
By the Numbers
There are six chapters of bankruptcy commonly in use in the US bankruptcy courts. Some apply only to municipalities, some apply to individuals but not businesses, some apply to both, and others are exclusive to businesses. Some types of bankruptcies are even completely theoretical. It can be very confusing, but most individuals generally file for chapters 7 and 13, while the most common business bankruptcy is Chapter 11. There are special bankruptcies for farmers and fishermen, people with businesses or assets in more than one country, even for institutions, states, and public districts.
Chapter 7 is also known as the “liquidation bankruptcy,” this is a procedure that is available to both businesses and individuals. When a business files or liquidation bankruptcy, the court may provide for a trustee to operate the business while liquidating the assets and paying off creditors. In terms of individuals who want to file there are bankruptcy qualifications, one of which is a means test acquired to file for Chapter 7. If an individual does not meet bankruptcy qualifications for a Chapter 7 bankruptcy, the bankruptcy filing is changed to Chapter 13.
Chapter 8 bankruptcy is one that is, at least for now, purely hypothetical. It is available to governments – specifically state governments – that have made such financial missteps that they need to seek the protection of the bankruptcy courts from their creditors and bondholders. As of yet, no state has ever actually had use bankruptcy, but in theory, it offers an alternative to a bailout from the federal government. For instance, many states carry heavy bond debt that was meant to finance public works and programs, but in the absence of sufficient revenues, the state may not be able to repay those debts.
Chapter 9 bankruptcies are not available to individuals or businesses but are exclusively available to public districts such as counties and municipalities. This type of bankruptcy also covers other public entities such as a municipal water and power company. Like states, public entities often have bond debt that was meant to finance infrastructure, public works, and programs.
Chapter 11 bankruptcy is most commonly filed by businesses though it is also available to an individual. This is a reorganization bankruptcy; however, the debtor remains in control of normal business operations and retains the assets necessary to operate the business. This is also called “debtor-in-possession.” In this bankruptcy, the debtor attempts to renegotiate terms on that’s associated with business such as interest rates, balances, and payments. The object of this bankruptcy is to have the bankruptcy discharged with the business in a healthy state to continue operations.
Chapter 12 is a specific form of bankruptcy for family farmers and family fishermen. Since operating a farm or fishing boat is in equipment-intensive business, this type of bankruptcy is focused on a plan to pay back over a term of years, much like the Chapter 11 bankruptcy. The object is to exit bankruptcy in a healthy financial state.
Chapter 13 is considered to be a bankruptcy plan for those who are earning a paycheck. It requires a regular income and focuses on developing a plan to pay off debt either in part or in full. It also allows individuals to retain property such as homes, automobiles, and other assets as opposed to liquidating under a Chapter 7 bankruptcy.
Chapter 15 bankruptcy is highly specialized. It was not added to the US bankruptcy code until 2005. This type of bankruptcy is businesses or individuals who are filing for bankruptcy in more than one country. If a business or individual has assets in the United States as well as in another country, they would file for a Chapter 15 bankruptcy cooperate with foreign courts and the federal bankruptcy courts.
As you can see, there are a lot of different ways to file for bankruptcy but only one will be right for an individual or a business. It’s very difficult for an individual to prepare and file their own bankruptcy. Even when using a bankruptcy preparer, you can’t get legal advice that you need to make sure that your filing is watertight. Among the risks when filing incorrectly is to have your bankruptcy dismissed and lose the protection of the automatic stay. An experienced bankruptcy attorney will get everything in order, file, and guide you through the process of bankruptcy so that you or your business can exit bankruptcy with a fresh start.
What We Do
At Van Horn Law Group, we are bankruptcy qualifications experts. We offer a zero-down bankruptcy, and we welcome walk-ins from Monday through Saturday at our West Palm Beach and Fort Lauderdale offices. We can even open on Sunday if you need to see us. Your first consultation is always free, and we will offer you the best legal advice that we have on tap. Our experienced staff and attorneys understand that all types and that bankruptcy is just one of the arrows in our quiver. We are here for you during the tough times, and we will see you through your bankruptcy until you are discharged and ready to live life again.
Bankruptcy Qualifications: What You Need to Know
Chapter 7, Chapter 11, and Chapter 13, let’s break down the bankruptcy qualifications for each type of bankruptcy option available.