Bankruptcy Codes

There are six specific codes which outline the proper filing of bankruptcy. Each of these types of bankruptcy has a specific application. There are bankruptcy chapters that apply to specific business structures and business types. Also, certain codes are written to aid businesses that are ceasing operation and certain codes are written to aid in the restructuring of a business.

In order to file a Chapter 7 bankruptcy, the entity that is applying may be an individual or a business. Corporations, partnerships and sole proprietorships are all qualified to apply for this type of bankruptcy. Each of these entities must have received approved credit counseling within at least 180 day before filing.

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There is another filing code that excludes corporations and is intended for smaller filings. Chapter 13 shares some similarities with a Chapter 7 filing, but Chapter 13 filings are for individuals and individuals operating an unincorporated business whose unsecured debt and secured debt meet certain requirements. To file as a Chapter 13 bankruptcy, the amount of secured and unsecured debt must be below a specific amount. This amount is adjusted periodically to align with the consumer price index.

Bankruptcy filing codes do not just apply to individuals and standard business types, they can also apply to public entities. Chapter 9 filling is intended for municipalities as well as municipal utilities and school districts. These municipalities can include cities, towns, villages and other structures. Chapter 9 filing was created in response to the Great Depression and is much less common in modern application.

Just as Chapter 9 was specific to municipal entities, Chapter 12 filings also are specific to certain businesses. Family farmers and fishermen receiving a regular income are able to file for bankruptcy under the protection of Chapter 12. This code was created for simplicity and ease of use for these families. It accomplishes this by setting specific time constraints on how the debt is paid. The restructured debt must be paid between three and five years according on the income of the bankrupt party.

Not all businesses are intending to end their operations when they file for bankruptcy. Chapter 11 filings allow businesses to restructure their creditor payments so that the business can remain active. This type of filing does have different implications for different business structures. If a corporation files for Chapter 11 bankruptcy, then the shareholder's personal assets are not liable to be affected. But in the case of a sole proprietorship, the personal assets of the business owner are at risk for being applied to the debt.

The most recently added code is a Chapter 15 filing which is based on the Model Law created as a part of the United Nations Commission on International Trade Law. This UN derived code deals with international bankruptcy that affects assets in the United States.

For more information on how to handle bankruptcy filings, please visit the website of the Des Moines business litigation lawyers LaMarca & Landry, P.C..

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