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of a municipality like a city or county, village, or local utility district. It is designed to keep the debtor operating and serving the public while its debts are being resolved. You are unlikely to encounter a Chapter 9 bankruptcy unless you are involved in state or local government. Chapter 11. This chapter is for businesses that are insolvent but want to continue operating while they repay creditors . The debtor company makes a plan called a Reorganization Plan explaining to the trustee how it intends to repay its creditors. If the Plan is approved, the debtor company can reduce its overall indebtedness by repaying portions of the debts and discharging (eliminating) others . It also has the right to terminate
Fin Lit Trivia Fin Lit Trivia Fin Lit
Colossal Losses The biggest-ever Chapter 11 bankruptcy in America was Lehman Brothers’ $691 billion case filed in September 2008. Creditors filed about $1.2 trillion of claims.
contracts and leases in order to reorganize its operations to return to profitability. For example, if the debtor has determined it needs to close one of its business branches or locations in order to improve its profits, it can terminate the lease without the risk of being sued by the landlord. The goal of Chapter 11 is to enable a business to reorganize its finances while continuing to operate. Chapter 12. This is a special chapter providing debt relief to family farmers and fishermen . This is basically the same as Chapter 13, below, but for farmers and fisherman. It allows an insolvent family farm or fishing business to continue to operate while their debt plan is being carried out. Chapter 13. This is a popular chapter that allows people with a regular income but overwhelming debt to make debt adjustments based on their income . Unlike Chapter 7, the debtor’s assets are not liquidated. Instead, the debtor proposes a three to five year plan for repaying all or portions of their debts. The repayment plan is based on what they can afford based on their income. The creditors must review and agree to the plan. Chapter 13 bankruptcy allows homeowners who have fallen behind on their mortgage to stop foreclosure proceedings and, over time, make up the delinquent mortgage payments. As long as a debtor complies with the repayment plan, they are protected from lawsuits, foreclosures, wage garnishments, and other collection actions by a creditor. When the debtor completes the payments required under the plan, they are discharged with a clean slate. Chapter 15. The purpose of Chapter 15 is to provide effective mechanisms for dealing with cross-border insolvency cases involving debtors, assets, claimants, and other parties of interest of more than one country. It is used in international trade and is intended to promote cooperation and coordination between the United States courts and foreign courts. Reflect on Learning: Can you select one word/phrase that describes each bankruptcy chapter? liquidation (7), municipality (9), reorganization plan (11), family farmers/fishermen (12), debt adjustment for people with income (13), international trade (15). III. Dischargeable vs. Non-Dischargeable Debt Not all debt is created equal. Bankruptcy divides debt into two distinct categories: dischargeable debt and non-dischargeable debt . Dischargeable debt may be eliminated in bankruptcy. Nondischargeable debt PRODUCT PREVIEW
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 355
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