Common Chapters of Bankruptcy

Depending on your income, amount of debt, number of creditors, and whether or not your dire financial straits involve a business or corporation, you will be considering different types of bankruptcy filings. The most common type of filing is Chapter 7 bankruptcy, followed by Chapter 13. Chapter 7 and Chapter 13 filings are known as personal filings and are the most accessible types for individuals in distress over their outstanding debts. 

Chapter 7 Bankruptcy

This kind of filing hews closely to what most people think of when they hear the term “bankruptcy.” Chapter 7 is often referred to as liquidation bankruptcy due to the rapid process in which unsecured debts and overdue accounts are liquidated. However, what makes many people hesitant to file this kind of bankruptcy is the possibility of losing certain types of property.

Your non-exempt assets, like recreational vehicles, will likely be on the chopping block. Even items you would think of as essential, like your home or car, might be forfeited depending on the amount of equity held in the asset and the amount you owe. To qualify for Chapter 7, your income must not exceed a specified limit. The main benefit of a Chapter 7 filing is that within a few months, your unsecured debts will hold a $0 balance and you may begin the process of repairing your credit score. 

Chapter 13 Bankruptcy

Even if you qualify for Chapter 7 bankruptcy, you may want to consider filing for Chapter 13 bankruptcy because you will generally be exempt from handing over any assets to satisfy your creditors. In a Chapter 13 filing, you must have a steady income that can guarantee at least partial repayment of debts. A court will determine the amount you are required to pay back to each of your creditors. This process will manifest itself through a payment schedule that typically lasts three to five years. The drawback of Chapter 13 is that the time needed to liquidate assets is at least 10 times the amount of amount needed in a Chapter 7 filing.

Chapter 11 Bankruptcy

When you hear about large companies like Toys “R” Us and General Motors filing for bankruptcy, it is almost always associated with a Chapter 11 filing, which usually involves massive restructuring of a company’s operations. It is similar to Chapter 13 in that companies may hold on to many of their assets while entering into payment plans with creditors. Chapter 11 is most commonly used by large corporations with complex debt situations, but may also be utilized by small businesses, limited liability corporations, or even wealthy individuals with a variety of assets. 

Chapters 9 and 12

Some of the lesser-known types of bankruptcy filings include Chapter 9 and Chapter 12. Chapter 9 filings are reserved for municipalities and other public entities. Detroit made history in 2013 when it filed for Chapter 9 bankruptcy that was estimated at around $19 billion, making it the most expensive municipal filing in U.S. history. Chapter 12 bankruptcy is a unique type reserved for “family” farmers and fishermen; it functions similarly to Chapter 13 but extends a few bonus protections to filers.

You Have Options

Adding to the daunting situation of bankruptcy is considering which type to pursue. There are tradeoffs associated with each classification and your decision should not be made without carefully scrutinizing each option. Contact us today for an experienced legal opinion on your debt situation.