Bankruptcy 101: The Types of Bankruptcies, Part One
Although we touched on this when I provided a basic glossary of bankruptcy terms in a prior article, it bears spending a few more column inches to discuss the major types of bankruptcies in more detail. We’ll skip over the more obscure varieties—family farmers, municipalities and cross-border bankruptcies—and focus on the “Big Three”.
In this first installment of a two-part article, we’ll cover Chapter 7 and Chapter 13. In the second installment, we’ll discuss Chapter 11.
A Chapter 7 bankruptcy is a liquidation. It can be filed by a flesh-and-blood person, or a business entity. When a Chapter 7 petition is filed, a trustee automatically is appointed from a panel of approved trustees maintained by the Office of the United States Trustee, the administrative “watchdog” over bankruptcy matters.
If the Chapter 7 debtor is a person, the trustee is charged with marshaling and liquidating all of that person’s non-exempt property. The proceeds of that liquidation are used first to pay the administrative expenses of the bankruptcy (including compensating the trustee), and second to satisfy the claims of creditors that hold claims against the debtor. Continue reading →