Rhode Island Bankruptcy Lawyer - Bankruptcy Attorney

What are the different chapters in bankruptcy?

Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as "straight bankruptcy" or "liquidation" cases, and may be filed by an individual, a corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. When the debtor is an individual, the debtor is allowed to claim certain property as exempt. The debtor receives a discharge, which means that he or she is relieved of the obligation to pay certain types of debts. Corporations and partnerships are not eligible to receive discharges.

Chapter 9 is only for municipalities and governmental units, such as school and water districts.

Chapter 11 is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization, which must be approved by the court. While the debtor normally remains in control of the assets, the court, in some circumstances, can order the appointment of a trustee to run the business. In addition to the filing fee paid to the Clerk, the debtor must pay a quarterly fee to the U.S. Trustee.

Chapter 12 offers bankruptcy relief to those who qualify as family farmers. There are debt limitations for chapter 12, and a certain portion of the debtor's income must come from the operation of a farming business. Family farmers must propose a plan to repay their creditors over a period of time from future income, and the plan must be approved by the court. Plan payments are made through a chapter 12 trustee, who also monitors the debtor's farming operations while the case is pending.

Chapter 13 is the debt repayment chapter for individuals (including those who operate businesses as sole proprietorships) who have regular income and whose secured debts do not exceed $871,550 and whose unsecured debts do not exceed $290,525. (Note that these debt limitations change from time to time.) Chapter 13 is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. The debtor pays the amounts set forth in the plan to the chapter 13 trustee, who distributes the funds for a small fee. The chapter 13 debtor receives a discharge of most debts after the debtor completes the payments required under the plan.

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