Bankruptcy in Chicago - Types of Bankruptcies Handled
The Bankruptcy Code contains general provisions (Chapters 1, 3, and 5) for all kinds of bankruptcy and several sections (Chapters 7, 9, 11, 12, and 13) focusing on bankruptcies for particular types of debtors. We will not discuss Chapter 9 (for cities) or Chapter 12 (for family farms), but will concentrate only on Chapters 7, 11, and 13.
"Business" bankruptcies
Chapter 11 Reorganizations or Liquidations under Chapter 11. A business can seek debt relief under chapter 7 or chapter 11. Also, if a business fails in its attempt to reorganize, it can change courses and conduct an orderly liquidation while still in chapter 11.
A business usually files for chapter 11 reorganization when it has had a history of success but is currently experiencing severe cash-flow problems or other economic hardships, and when its officers are convinced that, if it can hold off its creditors for a while and reduce the amount of its debt, it could emerge from chapter 11 with good prospects for again being a profitable enterprise. That's what happened with United Airlines, Chrysler, and General Motors, to name but a few. Chapter 11 is available not only for corporations, but also for limited liability companies, partnerships, limited partnerships, and sole proprietorships.
Chapter 11 relief is also available for individuals, whether or not they have business interests (e.g., they own a shopping mall or an apartment complex or have a medical practice.) Individuals who have debts that exceed the eligibility requirements for a chapter 13 consumer reorganization may also find relief through chapter 11.
Chapter 7 Straight Bankruptcies for Businesses: If the owners of a business determine that the business is in such debt that it makes no sense to try to reorganize, it can simply file a chapter 7 and turn all of its assets over to a chapter 7 trustee. If he can liquidate assets so that unsecured creditors will receive a dividend, the trustee will "administer" the case, liquidate the company's assets, and then close the case.
"Consumer" bankruptcies
Chapter 13 Consumer Reorganizations: An individual saddled with debt but who has a regular source of income and whose income is greater than his regular monthly expenses may reorganize and reduce his indebtedness through a chapter 13 plan. Chapter 13 debtors generally need to protect assets; their debt is primarily consumer debt; they may own small businesses; and they wish to repay all or a part of their debt.
A man and his wife can file a joint chapter 13 case. Often, the chapter 13 case affords the consumer a way to protect and preserve a major asset, such as a home for which the debtor has fallen behind on mortgage payments. The plan provides for the payment of arrearages on secured debt and payment of a portion of unsecured debt over time.
The chapter 13 trustee reviews the debtor's plan and recommends that it be accepted or rejected; creditors may support or oppose it, but ultimately the bankruptcy judge determines whether it is feasible and fair, and if so, confirms it. Frequently, the plan provides for payment of a fraction of the debtor's total indebtedness over a three to five year period. If the debtor fulfills his obligations under the confirmed plan, even if the plan call for payment of only 10% of the debt due to unsecured creditors, all of his debts will be considered paid in full, and he will be discharged of all unpaid amounts.
Chapter 7 Straight Bankruptcies for Individuals: Individuals file for chapter 7 bankruptcies when they have accumulated significant amounts of burdensome unsecured debts that they cannot repay, are current on any secured debts (e.g., mortgages) on assets they wish to keep, have no non-exempt assets to protect, and/or wish to discard toxic or unsustainable assets that are not necessary to their well-being. The purpose of the chapter 7 filing is debt-relief in order to give the debtor a fresh start.
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