The most common types of individual bankruptcy are Chapter 7 and Chapter 13, but there is also Chapter 11 for businesses and Chapter 12 for family farmers. The infographic below gives an overview of the differences between Chapter 7 and Chapter 13 bankruptcy. For more details, scroll below the infographic to learn more about the different types of bankruptcy.
Federal bankruptcy laws provide for four types of bankruptcy, which are described briefly below. Click on the title for more information on that type.
Chapter 7 is known as “straight” bankruptcy or “liquidation.” It is the most typical bankruptcy for individuals. It involves the liquidation of any non-exempt assets to be used to pay creditors. The remaining debt that is not paid by the liquidation is discharged, or forgiven. Individuals, corporations, and partnerships are eligible for Chapter 7 bankruptcy.
Chapter 11 is known as “reorganization.” It is preferred by businesses because they can still conduct business operations during bankruptcy. It is more complicated than the chapter 7 and basically involves a reorganization of the debt owed. Assets are kept and the debtor has 120 days to submit a debt repayment plan.
Chapter 12 is a bankruptcy option exclusively for family farmers. Similar to Chapter 11, the farmer can keep his farm-owned equipment and other assets while he works out a plan for paying back the debt.
Chapter 13 provides a way for individuals with a regular source of income to pay off their debts over a period of time under the supervision of the courts and an appointed trustee. The debtor can keep their assets in Chapter 13. Some of the debt may be discharged (based on the individual’s income) and the rest is repaid over 3 to 5 years in a debt repayment plan.