Different types of Bankruptcy : Business Bankruptcy Explained

Our bankruptcy attorney Matt Christensen explains the 6 different bankruptcy types. He breaks down what the role of the creditor and the bankruptcy trustee are and what the purpose is in filing for each type of bankruptcy.

Hi, my name is Matt Christensen. Today, we will explore the various types of bankruptcy, their purposes, the key players involved, and the role of debtors in each case.

Under the bankruptcy code, there are six official types of bankruptcy:

  • Chapter 7
  • Chapter 9
  • Chapter 11
  • Chapter 12
  • Chapter 13
  • and Chapter 15.

It’s interesting to note that Congress made Chapter 12 the only even-numbered one. As an individual debtor, you will typically fall into either a Chapter 7 or Chapter 13 case. Chapter 12 proceedings are specifically designed for family farmers and fishermen, although fishermen cases are rare in Idaho. For a regular individual, Chapter 7 or Chapter 13 are the most common options.

Chapter 7 is known as a liquidation bankruptcy. In this process, a Chapter 7 trustee is appointed to locate the debtor’s assets, recover any transferred assets, and distribute the funds among the creditors who have filed proofs of claim. Debtors can claim exemptions, which vary by state, to protect some of their property from liquidation.

On the other hand, Chapter 13 is a reorganization proceeding for individual debtors. It does not apply to companies. In Chapter 13, a bankruptcy trustee is also appointed. The debtor proposes a repayment plan for the creditors who have filed proofs of claim. The trustee’s role is to ensure that the proposed payment plan is sufficient and meets the requirements. Chapter 13 plans often involve paying a portion of the debts over time while discharging the remaining balance.

Chapter 12 is specifically designed for family farmers and fishermen. It also involves a trustee who ensures the viability of the proposed plan and that creditors receive proper payments.

Chapter 9 bankruptcy is limited to municipalities such as cities and counties. In Idaho, Chapter 9 cases are rare and require authorization from the state where the municipality is located.

Chapter 15 cases are international proceedings. They come into play when there is a bankruptcy case in another country, such as Canada, that needs to be recognized and dealt with in the United States. Chapter 15 provides a framework for handling such cases.

Lastly, Chapter 11 is a reorganization bankruptcy that can also involve liquidation in certain cases. It is commonly used by businesses aiming to restructure and remain operational while addressing their debts. Individuals can also file Chapter 11 cases to propose a repayment plan with altered terms and extended timeframes. Chapter 11 cases typically have more requirements for plan confirmation compared to Chapter 12 or Chapter 13 cases.

Regardless of the bankruptcy chapter chosen, there is an automatic stay that goes into effect upon filing. This stay prohibits creditors from taking further collection actions to a certain extent. Creditors with security interests in assets not necessary for the proposed plan may still be able to enforce their claims against those assets. However, they must still participate as creditors in the confirmed plan.

It’s worth noting that there are unofficial terms like Chapter 21 or Chapter 22. These simply indicate that it is the third Chapter 7 case or the second Chapter 11 case filed by a particular individual or company. They are not officially recognized bankruptcy chapters.

For questions about your bankruptcy case, or to request a consultation, contact Johnson May Law today.