Bankruptcy Filing Options
Have you ever asked, "how many different types of bankruptcy are there?" If you have ever searched for the answer to this question you likely have come across conflicting answers. Try asking some San Diego attorneys. Some will say 2 types (Chapter 7 and 13), some will say 3 types, and some may say 4 types.
Different Types of Bankruptcy
There are actually six (6) different types of bankruptcy, each named for the “Chapter” of the Bankruptcy Code that provides for the particular type of filing. By far, the 2 most common Chapters are Chapter 7 and 13. Below you will find a brief and concise explanation of each of type of filing Chapter. In addition, you will find a link to a page that contains a detailed discussion of everything you would ever want to know about each Chapter.
Chapter 7 is a liquidation proceeding in which you eliminate your personal liability for all of your debts that can be eliminated under bankruptcy law. It is referred to as a liquidation case because you liquidate your assets and eliminate your debts. However, in most cases, all of your assets will be protected by your exemptions. so none of them will be liquidated. Instead, you will just eliminate your debts. Individuals and businesses can file under this Chapter. If you have assets that are not covered by your exemptions, you will be required to surrender the property to the trustee so that the property can be liquidated to pay your debts or you can repurchase the assets from the trustee. With proper guidance from an experienced lawyer and careful planning for bankruptcy, you can keep your home, your car, your business, and other assets, while eliminating your personal liability for most or all of your debts.
Chapter 13 is a reorganization proceeding for individuals that is used mainly to stop foreclosure of your home and repay your missed payments over a 3-5 year period. Once you complete your Chapter 13 case, you can then eliminate your personal liability for most or all of your debts just as you could in a Chapter 7 case. Depending upon the value of your home, you may also be able to wipe out a 2nd mortgage through the lien stripping process. With proper guidance from an experienced attorney and careful planning, you can keep your home, your car, your business, and other assets, while eliminating your personal liability for most or all of your debts.
Chapter 7 vs. Chapter 13
In most cases, after reviewing your situation in great detail your lawyer will advise you to file bankruptcy under either Chapter 7 or 13. These are, by far, the most common type of bankruptcies that are filed each year, accounting for over 99% of all filings in the United States. In determining which is better for your situation, Chapter 7 versus Chapter 13, you must sit down with an experienced bankruptcy attorney and define your needs and your goals. Once your attorney has a good understanding of what your needs and goals are, your attorney can advise you on which Chapter is right for you.
Chapter 11 is a type of reorganization proceeding used primarily used by large corporations. In rare cases, it is used by small businesses or individual consumers who want to file a reorganization case but have too much debt to qualify to file under Chapter 13. Even though this Chapter is legally available to small businesses and individual consumers, from an economic standpoint most small businesses and individual consumers find that it is too time consuming and expensive of a remedy.
Chapter 12 a type of reorganization proceeding for family farmers, ranchers and fishermen that is very similar to Chapter 13. Individuals, corporations, and partnerships are all eligible to file under this Chapter if they qualify as a family farmer or family fisherman. This Chapter allows for higher debt limits than Chapter 13 to accommodate the higher amounts of debts typically borne by a family farming or ranch operation or commercial fishing operation.
Chapter 9 is a special type of reorganization case for government entities or municipalities. Municipalities are government agencies, such as cities, towns, counties, and public school districts. Chapter 9 is not for individuals or businesses.
Chapter 15 was added to the Bankruptcy Code in 2005 for the purpose of incorporating the Model Law on Cross-Border Insolvency in order to provide an effective mechanism for dealing with cross-border insolvency cases. Situations in which Chapter 15 is used are rare and include: (i) when the assistance of the United States is needed by a foreign court or representative in connection with a foreign proceeding; (ii) when the assistance of a foreign country is sought in a bankruptcy proceeding pending in the United States; (iii) when both a foreign and United States bankruptcy proceeding are pending concurrently; or (iv) where creditors or other interested parties in a foreign country request to file, or participate in, a bankruptcy proceeding in the United States.
In order to file a case under Chapter 7, you must take and pass the Means Test. A similar test is applied when filing Chapter 13, in order to determine how much of your debt you are able to repay under your repayment plan.
New Bankruptcy Law
The New Bankruptcy Law enacted in April 2005 and effective October 2005 (no so new anymore) can significantly affect your filing options. Perhaps most notable of the 2005 amendments is the Means Test.