Legal Bankruptcy - Basics

Legal bankruptcy entails four types of bankruptcy proceedings. These proceedings are known by the chapter numbers in which they appear in the Federal Bankruptcy Code. The four chapters are:

• Chapter 7
• Chapter 11
• Chapter 12
• Chapter 13

Given below is a short summary of the chapters:

Chapter 7: This chapter is the most frequently used chapter while filing for bankruptcy. A trustee known as the Chapter 7 trustee is entrusted with the task of liquidating assets of the debtor which are non-exempt. The collected amount is then dispersed to the creditors according to the priorities already established as per the Code. This chapter is commonly used by individuals, partnership firms, married people etc. If the debtor starts earning after the case has started, creditors cannot ask the debtor to pay from the new earnings.

Chapter 11: This chapter is basically for partnerships and corporate houses. Some individuals who have debts that are higher than the limits prescribed in Chapter 13 can also file for bankruptcy under chapter 11. The chapter specifies that organizations can reorganize subject to the acceptance of both creditors and the debtor with preconceived repayment terms and under the supervision of the court. The debtor continues to use his assets and continues with business under the rules of this chapter.

Chapter 12: This chapter is available for farmers wherein they can pay their creditors with the income they make in future.

Chapter 13: This chapter is basically for individuals with a regular source of income. These individuals pay from their earnings to the Chapter 13 trustee who then disburses it to the creditors.