What’s with all the chapters?

Have you had members declare bankruptcy recently? Is your first thought when you see Chapter 7 or Chapter 13: “why are my members doing book reports instead of paying back the credit union?” Well, this blog is for you. Many have heard of Chapter 7 or Chapter 11 bankruptcy but don’t know why they are called a “Chapter.” This has to do with the U.S. Bankruptcy Code. The U.S. Bankruptcy Code contains almost the entirety of federal bankruptcy law in the United States and is composed of 9 different chapters. Of these chapters, six deal with different types of bankruptcy and three deal with general, administrative, and procedural issues. The most common types of bankruptcies are Chapter 7, Chapter 11, and Chapter 13, which make up 99.8% of all bankruptcies filed in 2020 and are described below. The other types of bankruptcies, Chapter 9, Chapter 12, and Chapter 15, make up less than .2% of bankruptcies filed in 2020 and will not be discussed.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type of bankruptcy and can be declared by both individuals and organizations, such as corporations or nonprofits. Chapter 7 is a liquidation proceeding whereby the property of the debtor is sold or used to pay off their debts. This process is overseen by a local bankruptcy trustee who reviews the debtor’s bankruptcy and determines what actions are required, if any. While this is a liquidation, some of the debtor’s property may be protected, depending on the circumstances. A Chapter 7 bankruptcy generally discharges all of a debtor’s debts while leaving intact a secured creditor’s liens in the debtor’s property.


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