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The Bankruptcy Code is found in Title 11 of the U.S. Code and is divided into sections called Chapters. Each Chapter has specific advantages and disadvantages along with specific criteria for eligibility.
A person or entity commences a Bankruptcy proceeding by filing a document called a petition with the Court. In most cases the filing of a petition will activate a Court order called the automatic stay. The automatic stay prevents creditors from taking any further action against the petitioner or his/her property. In other words creditors may not repossess automobiles, foreclose on homes, garnish wages, make harrassing phone calls, or send threatening letters once a petition is filed. If a creditor continues any of these actions after the filing the Court may fine the creditor for contempt and order payment of actual damages plus attorneys fees.
CHAPTER 7- Liquidation (Court Filing Fee $299.00)
In a Chapter 7 the United States Trustee program will appoint a local person to act as the Trustee in a case. The Trustee is charged with administering the case and maximizing the payout to creditors. They attempt to pay creditors by taking property of the debtor and selling it. There are Federal and State Laws that govern what property a Trustee may take to sell. These laws are known as exemptions. In New York people are able to exempt up to $50,000.00 of equity per person in a homestead, $2,400.00 in equity in a car, $10,000.00 in personal property, along with various other miscellaneous exemptions. Because of exemptions most Chapter 7 cases end up with a Trustee taking no property from the debtor. If you're contemplating filing a Chapter 7 you should consult with an attorney in your State to determine which exemptions apply to you and how you can use them to your advantage.
CHAPTER 13- Re-Organization (Court Filing Fee $274)
In a Chapter 13 a Trustee is appointed to accept payments over a period from anywhere between 36 to 60 months. The Trustee will then use those payments to pay down creditors. A Chapter 13 can be used to bring a mortgage current, strip second mortgages, reduce balances on car loans, or repay tax and child support obligations. It can also be used to protect items that a Chapter 7 trustee may liquidate. In a Chapter 13 creditors must receive as much as they would get in a Chapter 7 and the debtor must pay as much as they can reasonably afford to pay to creditors.
CHAPTER 12 - Family Farmer (Court Filing Fee $239)
A Chapter 12 is reserved for family farmers and/or fisherman. It is similar to a Chapter 13 re-organization, however, individuals are able to extend repayment plans for longer than 60 months and allows a farmer to reduce secured claims such as mortgages in a different manner.
CHAPTER 11 - Business Re-Organization (Court Filing Fee $1,039)
Chapter 11 is primarily used by big corporations to re-organize themselves without going out of business. Individuals are eligible to file a Chapter 11, however, it is very expensive and Chapter 7 or Chapter 13 can usually achieve the same result.