Types of Bankruptcies

140.2.2 - Types of Bankruptcies (Rev. 13825; Issued: 06-11-26; Effective:07-13-26; Implementation: 07-13-26) Title 11 of the United States Code (the Bankruptcy Code) identifies four types of bankruptcies that may involve Medicare providers: Chapter 7, 9, 11 and 13. We briefly describe each type here to familiarize the Contractor with these types of bankruptcy. However, these general descriptions do not replace your attorney's specific advice in a particular bankruptcy case. 1. Chapter 7 - Debtors file Chapter 7 bankruptcies to obtain discharge of their debts. Companies that file under Chapter 7 generally close. A court-appointed trustee accumulates the assets of the debtor, sells them, and distributes the money among those whom the debtor owes (the creditors). 2. Chapter 9 - Chapter 9 bankruptcies involve municipalities, including entities such as hospital districts. In a Chapter 9 case, the municipal entity itself – rather than the individual hospitals it operates – is eligible for bankruptcy relief. Chapter 9 provides for reorganization, much like Chapter 11. 3. Chapter 11 - Debtors file Chapter 11 to reorganize a business or, in some cases, an individual’s financial affairs. To emerge from Chapter 11, the debtor in possession submits a Plan of Reorganization ("Plan"), which specifies the amount and schedule of payments to creditors. Creditors whose claims are impaired under the Plan are entitled to vote on it, while creditors whose claims are unimpaired are deemed to accept the Plan. The Bankruptcy Court must confirm the Plan before it becomes effective. Recovery amounts vary, and once the Plan is confirmed, the Bankruptcy Code provides for discharge of the remaining debt, subject to certain exceptions. 4. Chapter 13 - Chapter 13 bankruptcies allow individuals (including sole proprietorships) with regular income to adjust their debts. Generally, debtors must file a repayment plan within 15 days after filing the petition. The Chapter 13 plan typically extends over a period of three to five years, during which the debtor makes regular payments to a trustee for distribution to creditors.