The U.S. Bankruptcy Code is intended to protect businesses, individuals and creditors, and one of its three chapters is commonly applied in bankruptcy situations – Chapter 7, Chapter 11 or Chapter 13.

The bankruptcy laws enable an owner or owners to reorganize a corporation, sole proprietorship or partnership to protect assets and resolve debt problems.

Individual debtors may seek bankruptcy relief under these laws for the protection of assets and the management of debts.

Creditors rely upon the bankruptcy laws to obtain payment from debtors when possible.

Chapter 7: For Individual or Business Debtors to Sell Assets

A filing under Chapter 7 of the bankruptcy code is used to manage a liquidation, or the sale of available assets to repay as much debt as possible.

Chapter 7 applies to individuals, partnerships, corporations or other business entities that qualify for relief.

This form of bankruptcy includes an automatic stay provision which prevents creditors from executing collection efforts while the bankruptcy case is pending.

As a liquidation bankruptcy, Chapter 7 is available for circumstances where reorganization with debt repayment is not an option. Income restrictions apply to Chapter 7 bankruptcy proceedings.

Chapter 13: For Individual Debtors Who Can Repay Creditors

Chapter 13 bankruptcy usually applies to individuals only and is used in situations where repayment of creditors is possible.

This form of bankruptcy has restrictions on the amounts of secured and unsecured debts that can be administered.

A corporation or partnership cannot file for relief under Chapter 13.

Chapter 13 bankruptcy proceedings provide a co-debtor stay provision, which protects other parties to the debt, like a spouse or children, from being pursued for collection while the bankruptcy case is pending.

Unlike Chapter 7, Chapter 13 is not liquidation. A debtor under Chapter 13 must file a debt repayment plan that sets forth the amounts creditors will receive during the bankruptcy process.

Chapter 11: For Debtor Businesses to Reorganize

Chapter 11 bankruptcy can be filed by corporations, sole proprietorships or partnerships to reorganize and remain in business.

The administration of a Chapter 11 bankruptcy is overseen by the appointed bankruptcy trustee, who can protect the assets of a business and pay its creditors.

Chapter 11 bankruptcy has technical rules that can apply to the personal assets of stockholders and owners, depending upon how the business was established and how its debts were incurred.

Chapter 11 bankruptcy requires careful planning by the organization or business seeking relief, and the assistance of attorneys and accountants for managing the bankruptcy case and the repayment of debts.

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Kellie S. Rogers, a lawyer in the Salem office of Harrington, Hoppe & Mitchell, represents individuals and businesses in bankruptcy matters. She also provides counsel and advice on issues related to Social Security, Workers’ Compensation, estate planning, probate administration and family law. HHM is a debt relief agency, as it helps people and businesses file for bankruptcy relief under the U.S. Bankruptcy Code.