When considering bankruptcy, it’s important to understand the various types (or “chapters”) available, as they cater to different financial situations and qualifications. Here’s a breakdown of the most common chapters:

Chapter 7 Bankruptcy

  • What it is: Also known as “liquidation bankruptcy,” Chapter 7 allows you to discharge most of your unsecured debts, such as credit card bills and medical expenses. A trustee is appointed to oversee your case and sell your non-exempt property to repay your creditors.
  • Who can file: Individuals who meet the eligibility requirements, which include passing the means test (based on your income and expenses).
  • Pros:
    • Quick process (usually completed in 4-6 months).
    • Most unsecured debts are wiped out.
    • Allows you to start fresh financially.
  • Cons:
    • You may lose non-exempt property.
    • Not all debts are discharged (e.g., student loans, child support, taxes).

Chapter 13 Bankruptcy

  • What it is: Known as “reorganization bankruptcy,” Chapter 13 allows you to keep your property, but you must commit to a repayment plan to pay back part of your debts over 3-5 years. The repayment amount is based on your income and expenses.
  • Who can file: Individuals with a regular income who have unsecured debts below $465,275 and secured debts below $1,395,875 (as of 2024). It’s often used by those who are behind on mortgage payments or want to protect assets from being liquidated.
  • Pros:
    • You can keep your property, including your home and car.
    • Opportunity to catch up on overdue payments (e.g., mortgage or car loans).
    • More flexibility for high-income earners.
  • Cons:
    • The process can last 3-5 years.
    • You are still required to make monthly payments to the trustee.
    • You may need to give up some of your disposable income.

Chapter 12 Bankruptcy

  • What it is: This is similar to Chapter 13 but is designed specifically for family farmers or family fishermen who face financial distress. It allows them to reorganize their debts while keeping their business running.
  • Who can file: Family farmers or fishermen with regular income, who meet the qualifications for Chapter 12.
  • Pros:
    • Provides flexibility for agricultural businesses to restructure debt.
    • Allows for a repayment plan with lower monthly payments.
  • Cons:
    • Only available to family farmers and fishermen.
    • Requires regular income to maintain the business.

Chapter 11 Bankruptcy

  • What it is: Often used by businesses, Chapter 11 allows them to reorganize their debts while continuing operations. The business owner creates a repayment plan to pay creditors over time, subject to court and creditor approval.
  • Who can file: Businesses or individuals with significant debts who need to reorganize, rather than liquidate, their assets.
  • Pros:
    • Businesses can continue operating while restructuring debt.
    • Offers flexibility in managing complex debts.
  • Cons:
    • Very costly and complex process.
    • Typically, individuals don’t file Chapter 11 unless they have very large debts or own a business.

Can I Change My Chapter?

  • If you file for Chapter 7 and later find that you would benefit from a different type of bankruptcy, you may be able to convert your case to another chapter, such as Chapter 13, under certain circumstances. This can be beneficial if your financial situation changes or if you want to protect more assets.

Impact on Your Credit

  • Bankruptcy will remain on your credit report for up to 10 years, but it can allow you to eliminate much of your debt, which may help improve your financial situation over time.
  • If you are struggling with debt and wondering which type of bankruptcy is right for you, it’s best to consult with a bankruptcy attorney who can help determine the best path forward.

Next Steps

If you’re unsure which chapter of bankruptcy is right for you, it’s essential to consult with an experienced bankruptcy attorney. Schedule a free consultation today to discuss your situation and get professional advice on the best approach for your financial needs.