Individuals may be consumer borrowers, business borrowers or guarantors.
Individuals seeking liquidation generally file under Chapter 7. Under Chapter 7, the debtor’s nonexempt assets are liquidated by a trustee and the proceeds distributed to creditors. Most Chapter 7 consumer cases are “no asset” cases—i.e., no dividend will be paid to unsecured creditors. The primary goal of individuals filing under Chapter 7 is to obtain a discharge of their debts. A discharged debt may not be collected or enforced by the Bank. A debtor who has sufficient monthly income or “means” to make payments to creditors under a Chapter 13 plan is ineligible for Chapter 7. The court may dismiss the Chapter 7 petition or convert the Chapter 7 to Chapter 13. An individual’s ability to file Chapter 7 is governed by the “Means Test” discussed later in this Chapter.
Chapter 12 is intended for the reorganization of a family farmer with regular annual income. Chapter 12 is modeled after Chapter 13, but permits a family farming operation whose debts exceed the limits permitted under Chapter 13 to reorganize without having to comply with all of the Chapter 11 requirements.
Chapter 13 filings are sometimes referred to as “wage earner” cases. Chapter 13 may be used only by individuals who have no more than a certain statutory amount of unsecured and secured debt. It is intended as an alternative to liquidation for individual consumers or sole proprietors. [11 U.S.C. §109] A plan must be proposed and confirmed by the court. The plan may require the debtor to repay some or all debts. The debtor is allowed to keep or use all of his property, whether exempt or not. If the plan is completed, the debtor is given a discharge broader than that obtained in a Chapter 7 case. However, the absence of a vote by certain creditors, the ability to rewrite certain secured debts and the less restrictive discharge requirements cause it to be popular with many individuals. Individuals are eligible for Chapter 11 relief. Individuals who do not want to liquidate must file Chapter 11 if their debt exceeds the Chapter 13 limits.
Unsecured creditors may file an involuntary bankruptcy petition against an individual debtor under Chapter 7 or 11.
Serial filings are prohibited. A Chapter 7 cannot be filed for eight years, after a previous Chapter 7. A Chapter 13 will not be granted if a Chapter 7, 11, 12 has been discharged within four years. A Chapter 13 cannot be filed for two years after the last Chapter 13.