Types of Bankruptcy -

     Bankruptcy is divided up into chapters. The main types are Chapter 7, 11, 12 and 13. Chapter 9 is for government municipalities, and Chapter 15 is for ancillary and other cross-border cases.

Selecting a Chapter

     The selection of the proper chapter by debtors seeking relief from theirfinancial hardships is best done after consultation with an attorney experienced in bankruptcy, reorganization, and debt adjustment law. Prior to filing bankruptcy, the debtor should, with counsel, develop a comprehensive strategy to fully maximize his legal rights under the bankruptcy laws.

Chapters

     The most common are Chapter 7, 11 and 13. Less utilized are Chapters 9, 12, and 15. The selection of which chapter to file the case under is based on each debtor's own particular set of financial circumstances and goals. Some debtors may wish to reorganize their personal and business affairs, while others may wish to simply have their assets liquidated, wipe out their debts, and get a fresh start.

Chapter 7 is what has been called straight, or liquidation, bankruptcy--sometimes, "good old fashioned" bankruptcy. These cases can be filed by individuals, partnerships, or corporations. Chapter 9 is a process for a municipality or other government entity to arrange for an adjustment of its debts. One such municipality, Vallejo, California, filed a Chapter 9 bankruptcy seeking an adjustment of its collective bargaining agreements with city employees. Chapter 11 is a reorganization process, and is open for individuals, partnerships and corporations. It is typically filed by persons engaged in business, but this is not a requirement. Recently, the courts have seen a dramatic upswing in the number of Chapter 11 filings by individuals involved in the "mortgage meltdown" and real estate downturn. Often, these individuals have secured debt in excess of the limits of Chapter 13. Chapter 12 is for family farmers or fishermen with regular annual income seeking an adjustment of debts. Chapter 13 is a debt adjustment plan available for individuals only. No partnerships or corporations may file. In Chapter 13, the debtor signs up for a 3-5 year repayment plan, to repay all or a portion of his debts. The money is paid to a court-appointed Chapter 13 trustee, who acts essentially as a disbursing agent or conduit to distribute the money to creditors. Chapter 15 is for debtors who are the subject of pending foreign or cross-border bankruptcy proceedings. It is a relative newcomer to the bankruptcy arena, having been enacted as part of the sweeping Bankruptcy Reform and Consumer Protection Act of 2005 ("BAPCA").

Strategies for the Debtor

Automatic Stay, - Automatically stops most creditor action against the debtor "Lien-stripping" - Generally available in Chapters 11 and 13, "Use of "Avoiding Powers" - May let the debtor sue creditors and "undo" certain harmful transactions "Race to the Courthouse" - A bankruptcy filing allows assets to be sold by the debtor or trustee, over a reasonable period of time

Written by Henry Rendler