| The information below is only a very brief overview of the different
bankruptcy chapters and their typical applications. Debtors are urged to
speak with a knowledgeable attorney before deciding if filing for bankruptcy
is the right step to take and which chapter is the most appropriate in
any particular case.
CHAPTER 7
Chapter 7 is the Bankruptcy Code's liquidation chapter, sometimes referred
to as a "straight bankruptcy." Relief is available under Chapter 7 irrespective
of the amount of debt or whether the debtor is solvent or insolvent. One
of the primary purposes of bankruptcy is discharging debts to give an honest
debtor a "fresh financial start." Although the filing of a Chapter 7 petition
usually results in a discharge of debts, an individual's right to a discharge
is not absolute. A bankruptcy discharge does not extinguish a lien on property.
CHAPTER 9
The purpose of Chapter 9 is to provide a financially distressed municipality
protection from its creditors while it develops and negotiates a plan for
adjusting its debts. Reorganization of the debts of a municipality is typically
accomplished by either extending debt maturities, reducing the amount of
principal or interest, or refinancing the debt by obtaining a new loan.
CHAPTER 11
Although an individual may file under Chapter 11, the provisions of
this chapter are generally used to reorganize a business. Chapter 11 allows
the debtor to continue its business operations by means of a plan of reorganization,
which must meet certain statutory criteria. Generally, it is more economically
efficient to reorganize than to liquidate, because doing so allows a company
to continue business, preserving jobs and assets.
CHAPTER 12
Chapter 12 is designed specifically to meet the needs of financially
distressed family farmers and give them an opportunity to reorganize their
debts and keep their farms. Only a family farmer with "regular annual income"
may file a petition for relief under Chapter 12. The purpose of this requirement
is to ensure that the debtor's annual income is sufficiently stable and
regular to permit the debtor to make payments under a Chapter 12 plan.
Allowance is made, however, for situations in which family farmers have
income that is seasonal in nature.
CHAPTER 13
Chapter 13 is designed for individuals with regular income who desire
to pay their debts but are currently unable to do so. The purpose of Chapter
13 is to enable a financially distressed individual debtor, under court
supervision and protection, to propose and carry out a repayment plan under
which creditors are paid in full or in part in installments over a specific
time period, during which creditors are prohibited from starting or continuing
collection efforts.
United States Bankruptcy Court Clerk's
Offices in Pennsylvania |
