What are the various bankruptcy chapters?

Financial Cross to Bear

As an Asheville bankruptcy lawyer I’m occasionally asked how many chapters there are in bankruptcy. More often, I’m asked what a bankruptcy chapter is. It’s pretty simple.

The bankruptcy code is one part of the United States Code (“USC”), which encompasses all of the Federal statutes. Our federal statutes are enacted by Congress and cover everything from taxes to crimes to highways to veteran’s affairs to bankruptcy. Each big category section of the USC is called a Title. Bankruptcy falls under Title 11 of the USC. In other words, bankruptcy law is covered in Title 11 of the United States Code.

The bankruptcy code itself is divided into chapters. Currently there are 9 chapters. The first 3 chapters cover administrative matters like who can file bankruptcy, when and how a Trustee is appointed, how to handle creditor claims, etc. The remaining 6 chapters are chapters that you actually file bankruptcy under. For instance, people may tell you that they filed bankruptcy under chapter 7 or chapter 13. There are differences.

Chapter 7 is called a “straight” or “liquidation” bankruptcy. It is the only bankruptcy that is not based on a debt reorganization or repayment plan. Instead, the creditors are only paid if there are assets that can be liquidated which aren’t claimed as exempt by the Debtor, or if there are pre-bankruptcy transfers that can be “avoided” (a bankruptcy term for “set aside” or “undone”.)

With one exception, the remaining bankruptcy chapters are designed for debt reorganization or repayment plans. They are:

Chapter 9- A reorganization by a city or municipality.

Chapter 11- A reorganization by a business or an individual with large debts.

Chapter 12- A repayment plan by a family farmer.

Chapter 13- A consumer or “wage earner” repayment plan.

Finally, Chapter 15 deals with bankruptcies filed in foreign countries by entities with assets in the United States. In those cases, the foreign company can file a bankruptcy under Chapter 15 in order to administer its US based assets for its creditors.

Most people file chapter 7 or chapter 13. Most businesses file chapter 11. Chapter 12 cases are somewhat rare in North Carolina. Chapter 9 cases are extremely rare. The largest Chapter 9 case in history was filed by Detroit in July 2013. It had to file for bankruptcy protection in order to restructure over 18 billion dollars in debt. You may have heard about it.

You should consult with a competent bankruptcy attorney to help you decide which bankruptcy chapter is right for you. Kight Law Office, PC specializes in bankruptcy law and attorney Rod Kight can help guide you to make the decision that is right for you. Contact us today to see if we can help.