What to do when you receive a Notice of Bankruptcy? Step 1: Identify the Chapter

If you receive a Notice of Bankruptcy, like the samples shown below, the first step is to identify what chapter the debtor is requesting relief under.  There are multiple types of bankruptcy and each has different rules and requirements.

The title of the Notice identifies the Chapter that the bankruptcy is filed under.  Below we have included samples from the two most common bankruptcies:

A Chapter 7 Notice for a no-asset case:

A Chapter 13 Notice for a payment plan case:

As you can see the title of the Notice identifies whether it is a Chapter 7 or Chapter 13 case.  The notices differ as well in terms of the instructions they may provide because of the differences in these types of cases.  Below we explain a little more about why the type of case matters.  If you would like more information about bankruptcy visit our website.

The most common types of bankruptcy that you will encounter are Chapter 7, 11 and 13.

Chapter 7 Bankruptcy sometimes referred to as "liquidation", is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Chapter 7 is available to both individuals and businesses. Under Chapter 7 the debtor may claim certain property as exempt under the governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. After liquidation of these non-exempt assets, all remaining qualified debts are then discharged and the creditors are out of luck.

Chapter 11 Bankruptcy sometimes referred to as "reorganization", is designed for debtors in financial difficulty who may have the ability to pay their existing debts in part. Chapter 11 is available to both individuals and businesses, though is more typical for businesses. Under Chapter 11 the debtor must propose a plan that results in more payments to debtors than they would get under a liquidation. The plan must be approved by a council of creditors.

Chapter 13 Bankruptcy involves the repayment of all or part of the debts of an individual with regular income. Chapter 13 is designed for individuals with regular income who desire to pay their debts in installments over a period of time. Debtors are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code. Under Chapter 13, the debtor must file with the Bankruptcy Court a plan to repay their creditors all or part of the money they owe, using future earnings. The period allowed by the court to repay the debts may be three (3) to five (5) years. The court must approve the plan before it can take effect.

Our next post will address the following step for identifying what you should do with this notice after you have identified the type of bankruptcy: Are you actually a creditor, or did you receive the Notice for some other reason?