The Federal Bankruptcy Code guides debtors (those who owe debt) and their relationship with creditors (those who lent the money through credit).  When someone states that a case is in a certain “chapter,” that means that the debtor has filed a case under a certain part of the bankruptcy code.  Each section of the code, called a chapter, refers to a different type of bankruptcy.  Individuals looking for debt relief in Massachusetts should be aware of the different types of bankruptcy.

What Are the Different Types of Bankruptcy?

Chapter 7 bankruptcy is designated for individual debtors in extreme financial difficulty.  The purpose of this chapter is to liquidate the assets of the debtor to satisfy their debts.  In a Chapter 7 bankruptcy, a trustee (a court-appointed financial administrator) will take possession of all of the property of the debtor, other than a small portion of assets that the debtor needs to live on from day to day.  The trustee liquidates (or sells off) all non-exempt property and uses the proceeds from those sales to pay the creditors.  The trustee must follow certain priorities as delineated under the bankruptcy code.

Chapter 7 bankruptcy is designed to allow one to eliminate debts by obtaining a discharge (or release) from creditors.  However, there are reasons why a debtor may be denied a discharge.  Specifically, if a debtor makes certain improper actions, such as fraud, then the court may refuse to issue a discharge.

Even if a debtor receives a discharge for debts, there are often some debts that are not dischargeable.  Debtors, even after receiving a discharge, may be liable for taxes, student loans, alimony or child support, as well as debts incurred from personal injury matters in which the debtor was at fault.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is designed for the reorganization of a business, but is also available for individuals who are not a good fit for Chapter 13 bankruptcy, due to the large size of the claim.  Under Chapter 11 bankruptcy, the court approves a plan of reorganization that provides for payment of claims in full or in part, depending on the priority or type of claim.

Chapter 12 Bankruptcy

This chapter is designed to protect family farmers to repay their debts over time by paying those debts from future earnings.  This type of filing works very similar to a Chapter 13.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, a debtor repays part or all of the debts owed to their creditors, depending on the nature of the debts.  In a Chapter 13 case, the debtor establishes a repayment plan, which is designed to repay debts over the course of three to five years.  Some debts are not dischargeable, such as alimony or major secured debts.

Massachusetts Bankruptcy Attorney

To answer more questions about bankruptcy law, please contact the Law Office of Brian L. Lewis.