Types of Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 is the most popular form of bankruptcy. It is a liquidation proceeding in which the bankruptcy court is asked to eliminate the debts owed. This gives the debtor (the individual or individuals filing for bankruptcy) a “fresh start.” However, certain debts, such as student loans, court-ordered tickets, fines and restitution, alimony, and child support, cannot be eliminated or discharge, except in limited circumstances.

In a Chapter 7 bankruptcy case most assets are exempt. Generally, people get to keep all of their assets. However, nonexempt assets are liquidated and distributed to creditors. The debtor then receives a bankruptcy discharge in about ninety days after filing bankruptcy.

Chapter 11 Bankruptcy

Chapter 11 is a type of bankruptcy reserved for individuals with considerable assets, debts, or complex financial structures and/or businesses like corporations or limited liability companies that seek to reorganize, restructure debts or liquidate assets. Chapter 11 shares many of the same qualities of chapter 13, but tends to involve much more complexity on a much larger scale.

These types of bankruptcy offer many tools to keep businesses open and in possession of assets and business operations until they can return to a profitable status. To learn more about chapter 11 bankruptcies, visit our Chapter 11 page. The new subchapter V of Chapter 11, which was passed into law in April 2019, offers individuals and businesses a streamlined and more cost effective way to reorganize, restructure assets and debts under Subchapter V.

Chapter 12 Bankruptcy

Chapter 12 of the Bankruptcy Code was enacted by Congress in 1986, specifically to meet the needs of financially distressed family farmers. The primary purpose of this legislation was to give family farmers facing bankruptcy a chance to reorganize their debts and keep their farms.

Chapter 13 Bankruptcy

Instead of paying creditors out of the debtor’s assets, a Chapter 13 bankruptcy provides a repayment plan for the debtors to pay back creditors. It is available to individuals with regular income. In a Chapter 13 bankruptcy, debtors keep their assets and pay back creditors out of future earnings over the life of the payment plan (3-5 years). However, the Chapter 13 debtor can also choose to make some payment out of their current assets. At the completion of the payment plan, the debtor receives a discharge. With certain exceptions, the discharge that the Chapter 13 debtor receives is similar to the discharge that the Chapter 7 debtor receives.