After the Chrysler Bankruptcy it is time to revisit what bankruptcy means – Chapters 7, 9, 11, 12, 13, 15 – A layman’s lesson about the numbers…

As you most likely know by now, America’s 3rd largest automaker Chrysler filed for Chapter 11 bankruptcy protection today. You can read the email from outgoing CEO Robert Nardelli. In quick fashion, a new website appeared – www.ChryslerRestructuring.com. Instead of regurgitating what was said on the networks, cable channels, Twitter, and on the web today (read the NYTimes.com article for the details of the Chrysler situation), I thought I would research the fundamentals of bankruptcy. Given the state of our economy, I think this would be a great time to revisit the definitions of all types of bankruptcy.

USCourts.gov
USCourts.gov
As expected, I found the authoritative view on bankruptcy terms at USCourts.gov – The Federal Judiciary – Administrative Office of the U.S. Courts, an agency of the federal government.

Here are the basics defined in layman’s terms quoted directly from the USCourts.gov website:

Bankruptcy – A legal procedure for dealing with debt problems

Chapter 7 – The chapter of the Bankruptcy Code providing for “liquidation,”(i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.)

Chapter 9 – The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).

Chapter 11 – The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)

Chapter 12 – The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer,” or a “family fisherman” as those terms are defined in the Bankruptcy Code.

Chapter 13 – The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)

Chapter 15 – The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.

What do you think? Will Chrysler reemerge under Chapter 11 as a stronger company, or will they eventually fall into Chapter 7 liquidation?

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Michael Gray

Mike has roots in the automotive service industry. He began diagnosing and fixing cars at a young age in his family’s service station. He has worked in automotive parts supply stores, towing companies, and service facilities. After graduating from St. Cloud State University (MN) with a Bachelor’s degree, he implemented and taught a basic car care program at the high school level. During work on his Master’s degree at Illinois State University (IL), he was a curriculum specialist on a National Science Foundation project where he co-authored ten integrated mathematics, science, and technology books designed for team teaching. Mike has also supervised teachers in Career and Technology Education as a school system administrator.

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