Types of Bankruptcy
I get a lot of inquiries regarding types of bankruptcy and thought I would just lay out the different types of bankruptcy and have a short discussion regarding which type is appropriate in certain situations.
Chapter 7 is the type of bankruptcy that makes up a large majority of all bankruptcy cases filed in the United States. It is known as a “liquidation” or “fresh start” bankruptcy. Dischargeable debts are wiped out and non-exempt property is liquidated by a trustee who distributes the money pro rata to unsecured creditors. A chapter 7 case is typically appropriate for people who don’t have any disposable income they can use to repay creditors and who’s debts are primarily unsecured, dischargeable debts like credit cards, medical bills, payday loans, repossession deficiencies, and other unsecured debts.
Chapter 13 is the second most numerous type of bankruptcy. This is a reorganization (repayment) bankruptcy. Typically this option is best for people who have some disposable income they could use to repay all or a portion of their unsecured debt, or for those who need to use bankruptcy to help get caught up on a mortgage they’re behind on, or to prevent repossession on a vehicle. Most chapter 13 cases I see involve an attempt to save a house that is in foreclosure.
There are three other less common types of bankruptcies. Chapter 11 is a business reorganization (repayment). Chapter 11 may also be appropriate for individuals with debt that exceeds the Chapter 13 debt limits. This is the type of bankruptcy several airline companies and other large corporations have filed. Chapter 9 is a bankruptcy to adjust the debts of municipalities. It is rarely used.
Chapter 12 is a reorganization (repayment) plan for family farmer or fishermen. There are a few of these bankruptcies filed every year, typically by family farmers in rural communities. It works similar to a Chapter 13 reorganization, but with specific provisions applicable to family farmers or fishermen.
The bankruptcy reform law in 2005 also created a new Chapter 15 that deals with international cases. The chapter applies where 1) assistance is sought in the US by a foreign court or a foreign representative in connection with a foreign proceeding, 2) assistance is sought in a foreign country in country in connection with a case under this title, 3) a foreign proceeding and a case under this title with respect to the same debtor are pending concurrently, or 4) creditors or other interested parties in a foreign country have an interest in requesting the commencement of, or participating in, a case or proceeding under this title.
