You may have heard of Chapter 11, but did you know that 1,3,5,7,9,12,13, and 15 are also chapters in the Bankruptcy Code? In this 5 Minute Legal Master Series video, Bernstein-Burkley, P.C. Managing Partner, Robert S. Bernstein, helps navigate the different chapters of the Bankruptcy Code.
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The Chapter of the Bankruptcy Code (5:16)
Welcome to the 5 Minute Legal Master series where expert attorneys help you master important legal topics. Today, board certified creditors’ rights and business bankruptcy attorney, Robert S. Bernstein discusses the bankruptcy code.
I would like to talk about the bankruptcy code generally and describe what it is, why it is and how to navigate through it. The bankruptcy code is a federal statute, title 11 of the United States code. It is therefore applicable to all states, all people, it is uniform. The areas that make it non uniform is that is involves state law to the extent of lien law, liens are created under state law and exemptions which can be state or federal exemptions. The code is set up in chapter, 1, 3, 5, 7, 9, 11, 12, 13 and 15. 1, 3 and 5 are the administrative chapters, what the court is, what the rights of creditors are, what the rights of a trustee are. The important chapters are the chapters that most people hear about are chapters 7, 9, 11, 12, and 13. Chapter 7 is the straight liquidation bankruptcy, normal bankruptcy, straight bankruptcy, liquidation bankruptcy, it is where the debtor, the person who owes the money and is filing the bankruptcy, takes his/her non exempt assets, delivers them to a trustee appointed by the court, the trustee turns those into dollars and then distributes them to creditors according to a stature priority, pretty simple. In some chapter 7 cases there are no non exempt assets so there is no money, those are called no asset case. But the basic idea of a chapter 7 is liquidate it, turn it into money, give it to creditors.
11 is the business reorganization chapter. We hear that big companies, airlines, hotels, manufactures who file bankruptcy always file first in chapter 11 which gives the debtor, the company that owes the money, the opportunity to propose a plan to restructure its debts over time, it gives it some breathing room. Chapter 11 we have a lot of separate publications, videos but that is the basic idea of chapter 11.
Chapter 13 is a wage earner reorganization for an individual who has a regular income to propose a plan to pay its creditors over time. Chapter 12 is very much the same as chapter 13 but has some special protections for family farmers, again, giving that farmer an opportunity to pay its creditors over time. Chapter 9, which we are hearing more about these days is a municipal reorganization, cities, most recently Detroit, filed a chapter 9 bankruptcy, very special rules, I cannot even begin to address that right now, just know it is there and chapter 15 is for the relationship between US bankruptcies and foreign bankruptcies, it implements foreign bankrupt proceedings in the US if there are assets here, or it allows a company here to sort of export it s bankruptcy to another company.
The important thing is that in every case other than chapter 7, whether it works or not will depend on how it compares to liquidation. Moistly all of those other chapters in order for its reorganization plan to be implemented by the court, it has to give the creditors more than they would get on liquidation, more than they would get on chapter 7. So it is important to know what those chapters are. There is a lot more meat that goes on those bones and in this 5 minute legal master series we have a number of videos on the bankruptcy code. I would recommend them to you for more detail.
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