The Bankruptcy Code is divided into several chapters. When a debtor files a case, the debtor elects which chapter he or she will proceed. The different chapters have varying procedures for repaying debt and obtaining a discharge.
Chapter 7: Often called the "liquidation chapter," Chapter 7 cases may be filed by individual or non-individuals (corporations or partnerships). There is no debt limitation under Chapter 7; however, certain individuals may not be eligile for Chapter 7 relief under the "Means Test." Under Chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property as exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership's or corporation's debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.
Chapter 11: Chapter 11 and the remaining chapters of the Bankruptcy Code offer the debtor a chance to reorganize through a repayment plan. Creditors vote on whether to accept or reject a plan of reorganization, which must be approved by the court. While the debtor normally remains in control of the assets in a Chapter 11, the court can convert the case to a Chapter 7 case or order the appointment of a trustee in certain circumstances. In addition to the filing fee paid to the bankruptcy clerk, a quarterly fee is paid to the U.S. Trustee in Chapter 11 cases. There is no debt limit under Chapter 11.
Chapter 12: Chapter 12 offers bankruptcy relief to individuals, corporations, or partnerships who qualify as family farmers, a term defined under the Bankruptcy Code. There are debt limitations for chapter 12, and a certain portion of the debtor's income must come from the operation of a farming business. Family farmers must propose a plan to repay their creditors over a period of time from future income, and the plan must be approved by the court. Plan payments are made through a chapter 12 trustee who also monitors the debtor's farming operations while the case is pending.
Chapter 13: Chapter 13 is the debt repayment chapter for individuals with regular income whose debts do not exceed certain limits, including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property repaying creditors out of their future income for three to five years. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. Attorney fees may be paid through the plan. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.