C. Overview of the Bankruptcy Code
The chapter under which an entity files for bankruptcy depends on the nature of the entity and the results that the entity hopes to achieve through bankruptcy. Chapters 7, 9, 11, and 13 provide different options for bankruptcy under the Code.
Both individuals and businesses may use Chapter 7. Under this Chapter, a complete liquidation occurs. For individuals, this means they must liquidate their assets, distribute the value to creditors, and then start over free of debts after the liquidation. For businesses, this means they must liquidate their assets, and, instead of reorganizing and continuing operations, must cease doing business going forward. Debtors can either voluntarily file for a Chapter 7 bankruptcy or creditors can force them into an involuntary Chapter 7 proceeding.
Chapter 9 is designed for insolvent municipalities. Only voluntary filings are permitted under this Chapter, and in order to qualify as an eligible municipality, several conditions must be met. The following section will describe these conditions in greater detail when analyzing whether Indian tribes can utilize Chapter 9.
Chapter 11 allows businesses and individual consumer debtors to reorganize their financial affairs. Upon filing under Chapter 11, the Code gives debtors a period of time to reorganize their assets and liabilities in a formal reorganization plan. This option provides the possibility that the business will succeed in the future, allowing creditors to receive greater value than they would in a liquidation, preserving the jobs of those working in the business, and keeping a productive agent in the economy.
Chapter 13 gives relief to individuals with regular income who want to restructure their finances under a repayment plan that spans no more than five years. Although individuals may file under Chapter 11, as stated above, most individuals file under Chapter 13 if they want to restructure, as opposed to liquidating. However, individuals may have to revert to Chapter 11 because there is a limit on the amount of debt one can restructure under Chapter 13.
