The major bankruptcy options are organized in the U.S. Bankruptcy Code into different “chapters” of the Code. Chapters 7 and 13 are the ones mostly used by people with consumer and small business debt. So if that is your situation, most likely one of those is your best option. But if you are a farmer, rancher or fisherman, Chapter 12 may instead be the most appropriate for you. Chapter 11 can be used by people with an unusually large amount of consumer and/or business debt, but is mostly used by corporations and other business entities. Chapter 9 is for city, county and other governmental bankruptcies.
Chapter 7 is by far the most common type of personal bankruptcy, although not quite as much so in some parts of the country. It can be filed by individuals (single person or a married couple) or by businesses. It is often referred to as “straight bankruptcy.” For many people it is the quickest and simplest way to get a fresh financial start.
The moment a Chapter 7 case is filed, it immediately stops all creditors from pursuing you with very few exceptions. It stops lawsuits, garnishments, collection phone calls and letters, vehicle repossessions and home foreclosures. Chapter 7 discharges (legally permanently writes off) credit card balances, unsecured personal loans, medical debts and balances on repossessed vehicles. You can usually continue paying those debts that you want to pay, such as home mortgages or vehicle loans.
To file a Chapter 7 case you must qualify to do so, but most people do. In most cases people keep all of their assets, and most or all of their debts are legally written off. Usually it takes about three months from filing to completion.
Chapter 13 allows you to pay some of your debts in a manageable way. It can be a particularly powerful tool to take care of special debts, such as a home mortgage, vehicle loan, income and property taxes, and child and spousal support, while addressing your ordinary debts at the same time.
As in Chapter 7, the filing of a Chapter 13 case stops all collection activity against you and your property. The difference is that you enter into a formal, court-approved plan for the repayment of some of your debts over the following three to five years, and the protection from your creditors continues throughout this time. Chapter 13 gives you time to catch up on your mortgage and support arrearage, can often eliminate a second mortgage and reduce what you pay on a vehicle loan. It can also give you time to pay taxes that can’t be discharged, while usually not paying additional interest and penalties. At the completion of your case, the remaining balances on all or most of your debts are discharged, leaving you current on everything and otherwise debt-free.
CHAPTERS 9, 11, 12
Chapter 9 has been in the news more than usual because of bankruptcy filings by various cities and counties hammered by the Great Recession.
Chapter 11 is usually a reorganization for corporations, partnerships and sole proprietors. Locally, the November 2011 filing byAmerican Airlines is an example of a large corporate Chapter 11 case. If your debts are so large that you are disqualified from filing for Chapter 13, you may have to file under Chapter 11.
Chapter 12 is usually a business reorganization for farmers, ranchers and fishermen – in many respects a blending of the rules of Chapter 11 and 13.
If you are in the Dallas area and have questions about your choices among the different bankruptcy chapters, please contact us at The Law Offices of Roger Fuller. We provide a no-charge consultation. We have helped hundreds of Texans make good decisions about the best way to deal with their debts. Call The Law Offices of Roger Fuller at 214-516-6187.