Bankruptcy Chapters — Key Features
Bankruptcy (Title 11, U.S. Code)
Chapter 7 — Liquidation
Trustee sells nonexempt assets
Individuals must pass means test
Discharge of most debts (3–6 months)
Corporations do not receive discharge
Nondischargeable: student loans, alimony, recent taxes, fraud debts
Chapter 11 — Reorganization
Debtor continues operating as DIP
Plan of reorganization proposed by debtor
Creditor vote: majority in number + 2/3 in dollar amount per class
Court can confirm via cramdown
Available to individuals and businesses
Chapter 13 — Individual Repayment
Individuals with regular income only
Unsecured debts below $2,830,000 (2026)
3–5 year repayment plan
Debtor retains all property
Must pass best interests test
Broader discharge than Chapter 7
Common to All Chapters
Automatic stay on filing (§362)
Exceptions: criminal proceedings, domestic support
Priority: secured → admin → wages → taxes → general unsecured
UCC Article 9 — Priority Rules Summary
| Competing Interests | Rule | Winner |
|---|
| Perfected vs. unperfected | Perfected always wins | Perfected creditor |
| Perfected vs. perfected | First to file or perfect (whichever earlier) | Earlier filer/perfecter |
| Unperfected vs. unperfected | First to attach | Earlier attachment |
| PMSI (non-inventory) vs. prior perfected | PMSI perfected within 20 days of debtor's possession | PMSI holder (super-priority) |
| PMSI (inventory) vs. prior perfected | PMSI perfected before delivery + notice to prior secured parties | PMSI holder (super-priority) |
| Perfected vs. lien creditor | Perfected before lien attaches | Perfected creditor |
| Buyer in ordinary course (BIOC) vs. perfected | BIOC takes free of SI created by seller | BIOC (regardless of knowledge) |
WATERWages (administrative expenses first), Alimony/child support, Taxes (federal and state), Employee claims (up to statutory limit), Remaining general unsecured creditors
Simplified priority of claims in Chapter 7 bankruptcy distribution. WATER flows downhill — pay from the top.
ERSExoneration (compel debtor to pay first), Reimbursement (recover from debtor after paying), Subrogation (step into creditor's shoes)
The three rights of a surety. ERS follows the timeline: Exoneration is pre-payment, Reimbursement is post-payment, Subrogation is post-full-payment.
VRAPValue given, Rights in collateral, Authenticated security Agreement, (then) Perfect by filing
UCC Article 9 security interest lifecycle. First the interest attaches (VRA), then it is perfected (P) by filing a UCC-1 financing statement.