By Ryan C. Wood
The Bankruptcy Code is found in Title 11 of the United States Code. There are nine chapters of the Bankruptcy Code (Chapter 1 General Provisions; Chapter 3 Case Administration; Chapter 5 Creditors, the Debtor, and the Estate; Chapter 7 Liquidation; Chapter 9 Adjustment of Debts of a Municipality; Chapter 11 Reorganization; Chapter 12 Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income; Chapter 13 Adjustment of Debts of Individual with Regular Income and Chapter 15 Ancillary and Other Cross-Border Cases.
The first Chapter, General Provisions, consists of twelve sections. Chapter 1 provides for definitions of the key terms used in the Bankruptcy Code, rules of construction, who may be a debtor and other general guidelines for the administration of bankruptcy cases. Two of the more important sections are Section 105, Power of Court and Section 109, Who May Be a Debtor. Section 105 says the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title . . . . . . no provision of this title . . . preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. Section 105 can be used as a powerful tool to obtain relief from the Bankruptcy Court. Some have argued that Section 105 has been used to expand the Bankruptcy Court’s power.
The next chapter, Chapter 3 Case Administration, includes sections governing types of bankruptcy cases such as voluntary, joint or involuntary bankruptcy cases. One of the most important sections is Section 362. Section 362 provides for the automatic stay. The automatic stay takes effect as soon as a bankruptcy case is filed. The automatic stay stops any and all collection actions like repossession, foreclosure and lawsuits. Section 362 defines the effect of the stay and how it applies to different property and creditors.
Chapter 5, Creditors, the Debtor and the Estate, defines creditor rights, the debtor’s duties and what is the bankruptcy estate and property of the estate. One of the most important sections in this chapter is Section 523, Exceptions to Discharge. Section 523 lists the types of debts that are not discharged. There are a number of debts that have been deemed not dischargeable for public policy reasons or because of how the debt was incurred. The best example of a debt that is not dischargeable pursuant to Section 523 is debt incurred for willful and malicious injury by the debtor to another entity or to the property of another entity.
Chapter 7, Liquidation, provides for the appointment of a trustee, collection, liquidation and distribution of assets to creditors. The most common bankruptcy case filed is a no asset Chapter 7 bankruptcy case. In these cases available exemptions protect all of the bankruptcy filer’s property so there are no assets to be administered in the bankruptcy case. The trustee assigned to the case still administers the bankruptcy estate; there are just no assets to distribute to creditors.
Chapter 9 of the Bankruptcy Code provides for the Adjustment of Debts of a Municipality. In the last few years a number of municipalities have made headlines by filing for bankruptcy protection under Chapter 9. Orange County California, Vallejo California, Harrisburg Pennsylvania and Jefferson County are the most recent and high profile municipalities to file bankruptcy. States are not allowed to file bankruptcy, but municipalities within a state can be a debtor and seek the reorganization of their debts.
Chapter 11 of the Bankruptcy Code provides for the reorganization of debts for individuals and businesses that have over $360,475 in unsecured debts or $1,081,400 in secured debts. A Chapter 11 plan of reorganization is proposed and voted on by creditors.
Chapter 12 of the Bankruptcy Code provides for the Adjustment of Debts of a Family Farmer or Fisherman with Regular Income. Yes, farmers and fisherman have their own section of the Bankruptcy Code.
Chapter 13 provides for the Adjustment of Debts of an Individual with Regular Income. Chapter 13 allows an individual or small business to reorganize their debts if their unsecured debts are less than $360,475 and less than $1,081,400 in secured debts. In California these debt limitations are especially harsh. If you own two or more homes in the Bay Area you can easily have more than $1,081,400 in secured debt. In Texas you could own 10 houses and still be eligible to be a debtor under Chapter 13 given that home values there are so much less. One of the main distinctions between reorganizing under Chapter 11 versus Chapter 13 is that the Chapter 13 Plan of reorganization is confirmed or approved by the Bankruptcy Court and not voted on by creditors.
Chapter 15 of the Bankruptcy Code is a little known chapter. This chapter was created in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act to address the need for more rules regarding the filing of bankruptcy for international companies and foreign courts. Chapter 15 repeals or replaces Section 304 of the Bankruptcy Code.
For more information about your particular circumstances please contact our experienced bankruptcy attorneys in San Jose or bankruptcy lawyers to find out if bankruptcy is right for you.