Chapter 7, 11, 13…all about US insolvency laws

There are several different chapters of the US Bankruptcy Code, each of which provides a different type of relief to debtors. Here is an overview of the most common chapters of the bankruptcy code:

Chapter 7: This is the most common form of bankruptcy and is also known as “liquidation bankruptcy.” It allows individuals and businesses to discharge most of their unsecured debts, such as credit card debt and medical bills. However, the debtor’s non-exempt assets may be sold to pay off their creditors. Chapter 7 bankruptcy is often used by individuals with little to no income or assets.

Chapter 11: This form of bankruptcy is primarily used by businesses that want to reorganize their finances and operations. It allows the business to continue operating while it pays back its creditors over time. Chapter 11 bankruptcy is also available to individuals with significant debt.

Chapter 13: This type of bankruptcy is available to individuals with a regular income who want to restructure their debts and pay them off over a period of three to five years. It is often used by individuals who are behind on their mortgage payments and want to avoid foreclosure.

Chapter 12: This is a special form of bankruptcy that is available only to family farmers and fishermen who have regular annual income. It allows them to reorganize their debts and pay them off over time.

Chapter 9: This form of bankruptcy is available only to municipalities, such as cities and towns, that are struggling financially. It allows them to restructure their debts and continue providing essential services to their residents.

Eligibility requirements
Here is an overview of the eligibility requirements and rules for the most common chapters of the bankruptcy code:

Chapter 7: In order to be eligible for Chapter 7 bankruptcy, you must pass a means test, which compares your income to the median income in your state. If your income is below the median, you are generally eligible for Chapter 7 bankruptcy. If your income is above the median, you may still be eligible if you can demonstrate that you have little to no disposable income.

Chapter 11: Chapter 11 bankruptcy is available to individuals and businesses that are struggling with debt. There are no income or debt limits for Chapter 11 bankruptcy, but it is a complex and expensive process that is typically only used by large corporations.

Chapter 13: To be eligible for Chapter 13 bankruptcy, you must have a regular source of income and have unsecured debts of less than $465,275 and secured debts of no more than $1,395,875. You must also file a repayment plan with the court, which outlines how you will pay off your debts over a period of three to five years.

Chapter 12: Chapter 12 bankruptcy is available only to family farmers and fishermen who have regular annual income. To be eligible, you must have at least 50% of your income from farming or fishing, and at least 50% of your debts must be related to your farming or fishing business.

Chapter 9: Chapter 9 bankruptcy is available only to municipalities, such as cities and towns, that are struggling financially. To be eligible, the municipality must be authorized to file for bankruptcy under state law and must be insolvent.

Also See: Special features of insolvency laws in Cayman Islands