As a New Yorker. you’ve heard of bankruptcy Chapters 7, 11, and 13 – but have you ever heard of Chapters 9, 12, and 15?
What is Chapter 9 Bankruptcy?
Chapter 9 bankruptcy covers municipalities (cities and villages), counties, utilities, and school districts. Like Chapters 11 and 13, Chapter 9 allows these governmental entities to reorganize their debts.
Unlike Chapters 11 and 13, the Bankruptcy Court cannot compel entities going through Chapter 9 to sell off assets (such as a local park – although a municipality may choose to do so on its own), nor can the court make spending or other policy decisions on behalf of the entity. The Court can only approve the petition, confirm the plan, and ensure that it’s implemented.
Like companies going through the bankruptcy process, entities going through Chapter 9 usually have a large number of creditors – ranging from large multinational corporations to small local businesses. Creditors have much less leeway with the Court during Chapter 9 proceeding and can usually only object on whether the petition was filed in good faith or that the bankrupt entity got authorization from the state.
New York City, in 1974, came perilously close to going bankrupt < https://www.newyorker.com/news/news-desk/the-night-new-york-saved-itself-from-bankruptcy>. In 2013, the city of Detroit became the largest city in the US to declare bankruptcy with over $18 billion in debt to over 100,000 creditors.
While it may appear that the average person wouldn’t really need to be concerned about this type of bankruptcy, if you are a current or former employee of an entity that is declaring Chapter 9 there can be negative ramifications for you. Your pension may be wiped out. Your benefits could be substantially reduced. If you are still working, there could be mass layoffs or hiring freezes. While rare, these have been known to happen.
Click here to learn more <https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-9-bankruptcy-basics>
What is Chapter 12 Bankruptcy?
Created in 1986, Chapter 12 bankruptcy covers individual, family, and small corporate agribusinesses. This unique type of bankruptcy protection was created to help keep smaller farms and fisheries operating while reorganizing their debt – which is usually given a 3 to 5-year window.
In order to declare Chapter 12, you must not have debts over $4,153,150 (if a farming operation) or $1,924,550 (if a commercial fishing operation), the majority of the debt must be related to the operation of the farm/fishery, and over 50% of your gross income must come from the farm/fishery.
As in Chapter 11, those going through a Chapter 12 bankruptcy meet with creditors under court supervision, and business assets are reviewed and sometimes used to repay the outstanding debt. Also, since this is a “business” bankruptcy, the personal assets of the debtors (such as a home) cannot not be touched by creditors.
One big difference in Chapter 12 over Chapter 7 bankruptcy, is that if the farm/fishery decides to liquidate and sell off their assets, any federal taxes on closing can be discharged through their bankruptcy case.
If you know someone with a family farm or a small fishing business, and they are struggling due to the pandemic, international tariffs, or recent damaging weather, let them know that Chapter 12 is an option for them.
Click here to learn more <https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics>
What is Chapter 15 Bankruptcy?
Added to the U.S. Bankruptcy Code in 2005, Chapter 15 was created to allow access to US courts when a foreign company is declaring bankruptcy and has assets in the US. This way foreign and US courts can coordinate, and debtors are protected from creditors coming after US-based assets while a bankruptcy hearing is held in another country.
The US is now one of 53 countries that follow the United Nation’s Model Law on Cross-Border Insolvency – which was developed to reduce the risk for creditors and stakeholders of international companies. Chapter 15 regulations help coordinate the bankruptcy process on the US side and can influence courts in a foreign jurisdiction that may be working under different laws.
Recently, Virgin Airways declared Chapter 15 in order to protect its assets here in the US while negotiating with creditors in the UK. Read the story here <https://www.businessinsider.com/what-is-chapter-15-bankruptcy-2020-8>
While this is not something you are likely to come across on a regular basis, if you work for, or have clients who work for, a multinational company, knowing more about Chapter 15 could be useful.
Click here to learn more <https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-15-bankruptcy-basics>
If You Need to Know More
Since there are so many variables when it comes to all the variation of bankruptcy, the best option you have is to contact an experienced bankruptcy lawyer to get advice on your particular situation. Reach out to New York bankruptcy attorney Ronald Weiss for a free consultation. He can tell you what you need to know about the bankruptcy process, and, if need be, help you get your case started. Call 631-271-3737 and take the first step to a fresh start.