What are the Types of Bankruptcies?

Chapter 7 Bankruptcy

Also known as liquidation or straight bankruptcy, Chapter 7 is the most common type of bankruptcy for individuals. A court-appointed trustee oversees the liquidation (sale) of your assets (anything you own that has value) to pay off your creditors (the people you owe money to). Any remaining unsecured debt (like credit cards or medical bills) is typically erased.

Most people are able to hold on to basic necessities like their house, car and retirement accounts during Chapter 7 bankruptcy, but nothing is guaranteed. Chapter 7 also can’t stop a foreclosure—it can only postpone it. The only way to keep the stuff you still owe money on is to reaffirm the debt, which means you recommit to the loan agreement and continue making payments. But most Chapter 7 bankruptcies are no-asset cases, which means there’s no property with enough value to sell.

You can only file for Chapter 7 bankruptcy if the court decides you don’t make enough money to pay back your debt.

A Chapter 7 bankruptcy also stays on your credit report for 10 years, and you won’t be able to file for it again until after eight years.

Chapter 13 Bankruptcy

While Chapter 7 bankruptcy often forgives your debt, Chapter 13 bankruptcy basically reorganizes it. The court approves a monthly payment plan so you can pay back a portion of your unsecured debt and all of your secured debt over a period of three to five years. The monthly payment amounts depend on your income and the amount of debt you have. But the court also gets to put you on a strict budget and check all your spending (ouch!).

Unlike Chapter 7, this kind of bankruptcy allows you to keep your assets and catch up on any debt that isn’t bankruptable. Chapter 13 can also stop a foreclosure by giving you time to bring your mortgage up to date.

Anyone can file for Chapter 13 bankruptcy as long as their unsecured debt is less than $419,275, and their secured debt is less than $1,257,850. Plus, you have to be up to date on any tax filings. You should also know that a Chapter 13 bankruptcy stays on your credit report for seven years, and you can’t file for it again until after two years.

Chapter 11 Bankruptcy

For the most part, Chapter 11 bankruptcy is used to reorganize a business or corporation. Businesses come up with a plan for how they’ll continue operating the company while paying off their debt, and both the court and the creditors must approve this plan. Some individuals, such as real estate investors, who have too much debt to qualify for Chapter 13, but who also have a lot of high-value properties and assets, may also choose to file under Chapter 11. But unless you’re a pro athlete or a celebrity, you’re probably not going to mess with this one.

Chapter 12 Bankruptcy

This is a repayment plan that allows family farmers and fisherman to avoid having to sell all their stuff or foreclose on their property. While it’s similar to Chapter 13 bankruptcy, Chapter 12 is a little more flexible and has higher debt limits.

Chapter 15 Bankruptcy

Chapter 15 deals with international bankruptcy issues and gives foreign debtors access to U.S. bankruptcy courts.

Chapter 9 Bankruptcy

Chapter 9 bankruptcy is another repayment plan that allows towns, cities, school districts, etc. to reorganize and pay back what they owe.

For more specific information about bankruptcy laws in your area, visit https://www.uscourts.gov/services-forms/bankruptcy website.

For more information, visit: https://www.ramseysolutions.com