Chapter 10 Bankruptcy

Updated on May 9, 2024
Article byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Chapter 10 Bankruptcy?

Chapter 10 bankruptcy was a provision established by the US federal government to allow individuals and corporations to file for bankruptcy and start afresh. It was introduced under the Bankruptcy Act of 1898 to assist businesses that had faced financial difficulties.

Chapter 10 Bankruptcy

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When a debtor filed for bankruptcy under Chapter 10, debt collectors were prohibited from taking any actions due to an automated stay order imposed by the bankruptcy court. The provision presented corporate debtors with two choices: they could either liquidate their assets to repay debts or formulate a repayment plan to continue their operations.

Key Takeaways

  • Chapter 10 bankruptcy, also known as Chapter X, was designed for corporate debtors to restructure their financial affairs and file for bankruptcy. It was not solely focused on businesses and companies but had a significant application.
  • Chapter 10 underwent various changes and amendments since its inception under the Bankruptcy Act 1898. However, it was ultimately eliminated in the Bankruptcy Reform Act of 1978, and its key elements were incorporated into Chapter 11.
  • Filing for bankruptcy under any chapter, including Chapter 10 (now part of Chapter 11), was not mandatory but an option for debtors facing financial crises.

Chapter 10 Bankruptcy Explained

Chapter 10 bankruptcy was a provision within the US Bankruptcy Code that allowed companies and individuals to file for bankruptcy, subject to specific limitations and qualifications. In the US, when an individual, company, or legal entity faced financial difficulties, had substantial debts, and anticipated an inability to repay, they sought bankruptcy protection.

According to the Chapter 10 bankruptcy definition, an automated stay order was immediately imposed after filing for bankruptcy. This order prevented debt collectors from taking any legal action against the debtor. Various chapters within the US bankruptcy code catered to different types of bankruptcy. The process typically begins with a debtor’s petition or a petition on behalf of the creditor. Assets were assessed for value and used to repay some of the outstanding debt.

On paper, bankruptcy might have appeared as an opportunity to make a fresh start, but it had limitations. All these cases were handled in federal courts under the US bankruptcy code. This was because bankruptcy had a lasting negative impact on the debtor’s credit history, during which they had to work continuously to rebuild it. If a debtor was ineligible, they could not file for bankruptcy and had to endure financial difficulties while seeking external assistance.

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The requirements for Chapter 10 bankruptcy were as follows:

  • The primary requirement was that a debtor possess less than $7.5 million in debt to be eligible for it.
  • Unlike Chapter 7 bankruptcy, chapter 10 eliminated the need for an individual debtor to undergo a “means test.”
  • Chapter 10 had the authority to process, qualify, or permit debt based on certain requirements and limitations related to the debtor’s income and total debt.
  • An important aspect of Chapter 10 was initiating the Consumer Bankruptcy Reform Act, aimed at making student loans dischargeable and addressing issues of racial and gender discrimination within the bankruptcy system to eliminate them.

Process Steps

The typical process steps for Chapter 10 bankruptcy were as follows:

  • Credit Counseling: Before initiating the bankruptcy filing, the debtor met with a government-approved credit counselor to discuss various aspects, including documentation, proceedings, and financial situation.
  • Filing the Bankruptcy Petition: The debtor engages a bankruptcy lawyer to handle all legal proceedings and documentation, marking the beginning of the bankruptcy process. The filed document contained critical and detailed information regarding the debtor’s financial crisis.
  • Automatic Stay: Once the petition was filed, a court order triggered an automatic stay, preventing creditors from contacting the debtor or taking legal action. However, they were permitted to communicate with the debtor’s lawyer.
  • Creditor’s Meeting: Approximately one to two months after filing, the debtor’s attorney attended a meeting organized by the bankruptcy trustee. This meeting involved the debtor, the creditors, representatives, and the trustee.
  • Bankruptcy Finalization: The bankruptcy process progressed with the valuation of the debtor’s assets, income, financial situation, and other criteria. Following this assessment, the debtor was required to complete a debtor’s education course, which could be done online.
  • Notice of Discharge: The final step was the issuance of a notice of discharge, after which the debtor was relieved of their debt. It’s important to note that the duration of the process could vary under different chapters of bankruptcy, making it either shorter or longer than usual.


Here are two examples of Chapter 10 bankruptcy, one hypothetical and the other is a real-world scenario –

Example #1

Suppose Benedict owns a pipe manufacturing company. He was managing his debts well, but the pandemic hit, causing huge losses. Benedict’s debt reached $4.5 million, and he filed for Chapter 10, a corporate bankruptcy. He could either sell his assets, pay off debts, and close the business or create a repayment plan. Benedict chose to start fresh and liquidate his business. The bankruptcy process is complex and involves a lot of paperwork.

Example #2

In 2022, Senator Elizabeth Warren and House Judiciary Chair Jerrold Nadler reintroduced the Consumer Bankruptcy Reform Act to reform the bankruptcy system for student-loan borrowers in the United States. The proposed legislation seeks to simplify the bankruptcy process for those in deep financial trouble, making it easier for them to obtain meaningful bankruptcy relief. Student loan borrowers face significant hurdles in discharging their debt through bankruptcy, as they must prove undue hardship.

The bill introduces a new Chapter 10 bankruptcy code that treats student loans like credit cards and other consumer debts, allowing borrowers to have their student loans discharged more easily. Additionally, the legislation addresses wealth disparities and racial and gender disparities within the bankruptcy code. The bill has garnered support from legal experts and aims to provide relief to those who are struggling with their student loan debt.

Advantages And Disadvantages

Some of the important advantages and disadvantages are the following:


  • Fresh Start: Chapter 10 bankruptcy allowed both individuals and companies to begin anew, providing an opportunity to restructure their financial situation.
  • Automated Stay: It imposed an automatic stay order, preventing debt collectors from taking legal actions against the debtor during bankruptcy.
  • Options: Chapter 10 offered the flexibility to choose between liquidating assets to pay off debt and ceasing operations or creating a repayment plan to continue business operations.
  • Eligibility and Relief: While Chapter 10 had eligibility criteria, it also provided certain reliefs under the Bankruptcy Act to debtors facing financial distress.


  • Eligibility Limitation: If a debtor did not meet the eligibility criteria, they would not qualify for Chapter 10 bankruptcy.
  • Negative Credit History: Filing for Chapter 10 negatively impacted the debtor’s credit history.
  • Unfavorable Rules: The rules and regulations of the Bankruptcy Act and court orders did not always work in favor of the debtor, which could present challenges during the bankruptcy process.

Chapter 10 Bankruptcy vs Chapter 11 Bankruptcy

Here are the main differences between them:

Chapter 10 BankruptcyChapter 11 Bankruptcy
Available for both individuals and businessesPrimarily designed for corporate and business bankruptcy
Company management is typically replacedThe company retains its management
Chapter 11 offers more flexibility and is considered less rigid, making it a preferred choice for corporate debtors.Chapter 11 offers more flexibility and is considered less rigid, making it a preferred choice for corporate debtors

Frequently Asked Questions (FAQs)

1. How long does Chapter 10 stay on the credit report?

After completing the bankruptcy process, the debtor was no longer liable to pay any debt. However, it negatively affected their credit report for a long time. The bankruptcy status was indicated, and it might have taken another seven to ten years for the concerned party to rebuild it. They might have faced difficulties obtaining even the smallest new debts.

2. How does Chapter 10 and Chapter 7 bankruptcy differ?

Both Chapter 7 and Chapter 10 used to differ in their application, criteria, and eligibility. However, with new revisions made under the Consumer Bankruptcy Reform Act of 2020, Chapter 10 replaced Chapters 7 and 11.

3. What repayment plans did Chapter 10 bankruptcy allow?

Chapter 10 bankruptcy followed three types of repayment plans:
– The first was a simple repayment plan that covered medical bills, credit card settlements, and general unsecured debts.
– The second was the residence plan. The plan catered to mortgage repayment and any ongoing and outstanding debts to the mortgage company.
– The third was the property plan, which included secured debts like cars, liens, and tools. It addressed the interest amount based on the collateral’s current value.

This article has been a guide to what is Chapter 10 Bankruptcy. We compare it with Chapter 7 Bankruptcy, & explain its requirements, examples, steps, and advantages. You may also find some useful articles here –

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