Is the title of the U.S. Code governing corporate and personal insolvency and debt adjustment. Individuals, whether merchants or not, as well as private corporations, with the exception of certain financial institutions, are subject to the Bankruptcy Code. A number of federal and state legislative acts during the 19th century laid the basis for the code, but it was not until the development of the Bankruptcy Reform Act of 1978 that the laws were enacted. Chapter 7 of the code governs liquidation, in which assets are sold and the proceeds are given to creditors. Chapter 9 governs the adjustment of debts of a municipality. Chapter 11 governs corporate reorganization, in which debts are temporarily frozen and business is consolidated as part of a court-approved plan to pay off creditors. Chapter 12 governs the adjustment of debts of a family farmer with regular annual income and functions much like Chapter 13. Chapter 13 governs wage earners’ bankruptcy, in which debts are paid off from disposable income while the court controls other assets.
Chapter 7 of the Bankruptcy Code is the most common form of bankruptcy in the country and covers the liquidation process. It governs liquidation, in which assets are sold and proceeds are given to creditors. This is the most common form of bankruptcy. Companies may file for Chapter 7 bankruptcy for liquidation or Chapter 11 for reorganization.
Chapter 11, is designated for companies filing for bankruptcy that create a plan to reorganize their debt repayment structure. It’s a form of bankruptcy that allows for the restructuring of the business debts, and assets and is known as a “reorganizational” bankruptcy for this reason. Chapter 11 is the most expensive and complex form of bankruptcy, most companies explore all alternatives before offering one.
Chapter 13 bankruptcy, is a personal restructuring of debt in which debts are paid from disposable income and the court controls other assets. To qualify for Chapter 13 benefits, consumers must have regular income and be in debt not exceeding a certain amount set forth in the Bankruptcy Code.« Back to Glossary