Why are bankruptcy types called Chapters and what do the different bankruptcy chapters mean?

Bankruptcy law is written into the federal law in what is called the Bankruptcy Code. The code is divided up into 9 parts which are called “chapters”.. Unlike books where the chapters are sequential, bankruptcy chapters are 1, 3, 5, 7, 9, 11, 12 (an even number to disrupt the pattern), 13, 15. The first Chapter is very general and applies to all other chapters in the code. Chapter 3 deals with case administration. Chapter 5 is about the bankruptcy estate, creditors and debtors. Chapter 9 applies only to municipalities going bankrupt. Chapter 15 is about international bankruptcy procedure. The four remaining chapters are the ones we most often hear about.

Chapter 7 cases are “liquidation” cases commonly used by people who don’t have any money left at the end of the month and who have lots of debt, typically unsecured debt like credit cards. Chapter 13 is also often used for wage earning individuals who repay a portion of their debt over a number of years as administered and regulated by the bankruptcy court. Chapter 11 of the Bankruptcy Code deals with the reorganization of individuals who used to be affluent and corporations.  Chapter 12 is set aside for family farmers.

The bankruptcy code has been re-written several times. The largest change of our time was the 2005 re-write by the Bankruptcy Abuse Prevention and Consumer Protection Act (fondly known as BAPCPA – pronounced Bapseepa). The Bankruptcy Code is one of the most legally complex laws ever written and while bankruptcy is a very useful tool, it is best to seek professional advice as to what chapter, if any, is right for your unique situation. While it is complex, my free paperback book available on this site will help you understand it a bit better. Or, if you are ready to speak to an Illinios lawyer, give us a call at O'Connor Cadiz Law for a no obligation consultation. 

Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Injury & Accidents, Disability Insurance.