Federal law directs all bankruptcy cases under the Bankruptcy Code with aspects of bankruptcy related to procedures managed according to Bankruptcy Rules; however, individual judicial districts may have their own local rules. It is worth noting that there are at least 90 different judicial districts, potentially more than one in some states, so there are diverse procedures specific to the districts.
Chapter 7 is a bankruptcy option pertinent to both individuals and businesses as it provides instant relief to the debtor for a time through putting a stop to any actions to recover debt on the part of the creditors once a petition and necessary information related to the debtor’s assets and income have been filed and a ‘means test’ taken. Filing costs are incurred but may be ameliorated over a period of up to six months under certain circumstances. While chapter 7 may provide relief from consumer debt for example, debtors need to consider that chapter 7 makes possible the liquidation of assets to provide the best return to creditors; therefore, the debtor may relinquish estate assets not protected by exemptions. Individuals can expect to have much of their debt discharged and the opportunity to start their lives afresh, but this is not readily available to partnerships or corporations.
Chapter 13 is a bankruptcy option of use to debtors with sufficient income to make progress on their debts given some support, such as relief from the actions of creditors. A trustee is appointed and the debtor must create a plan for debt repayment in a three to five year period which is presented to the court. To be accepted the plan needs to in compliance with the Bankruptcy Codes, secured creditors must be provided for in comparison to the chapter 7 option, and the debt must be with certain limits. In addition, the debts are not discharged until the plan payments are complete. The advantage of chapter 13 is that the debtor does not lose property as this is not a liquidation procedure.
Chapter 12 is a bankruptcy approach similar in most aspects to chapter 13 but specific to family farmers and fishermen with the expectation that the business can continue to operate. Like chapter 13, chapter 12 considers the regular income available to the debtor and involves the creation of a debt repayment plan covering a three to five year time frame and executed with the assistance of an appointed trustee. Chapter 12 provides for managing the high levels of debt associated with farming or fishing.
Chapter 11 is another bankruptcy option which involves the creation of a plan of reorganization. However, chapter 11 is more suitable for businesses than individuals as it may be a lengthy and expensive process. Although creditors are given the opportunity to evaluate the debtor’s circumstances and expected reorganization, as with chapter 13, the court has the jurisdiction over acceptance or rejection of the plan of reorganization. This option assists the debtor to make changes to a business to enable trading to proceed through a combination of repayments and discharges according to the reorganization plan.
Chapter 9 is a bankruptcy option designed to provide for municipalities in difficulties.
Chapter 15 is a bankruptcy option that provides for a situation where a debtor or the debtor’s estate is under the jurisdiction of both USA law and that of another country or countries.