Understanding 5 Types of Bankruptcies

Many business owners and individuals who explore the possibility and viability of filing for bankruptcy are surprised — and indeed, confused — by the fact that there is not just one type of bankruptcy filing. Rather, there are multiple types of bankruptcy filings that get their name from the chapter in which they are described in Title 11 of the United States Code (more commonly referred to as the “Bankruptcy Code”).

Below, we summarize five of the most common types of bankruptcies: Chapter 7, Chapter, 11, Chapter 13, Chapter 9 and Chapter 12 (the non-linear order in which these are discussed reflects the volume of annual filings).

Types of Bankruptcy Filings: Chapter 7

Chapter 7 bankruptcy — which is also known as “liquidation bankruptcy” involves a court-appointed trustee taking possession of a petitioner’s non-exempt assets, and selling them to pay back creditors. Most, though not all, debts can be wiped out per chapter 7. Exceptions include student loans, alimony, child support, and restitution orders per a criminal conviction.

Types of Bankruptcy Filings: Chapter 11

Chapter 11 bankruptcy — also known as reorganization bankruptcy —enables businesses to restructure and reorganize their debt, and remain operational while creditors are repaid over a 3-5 year period. Several well-known businesses, such as GM, have successfully emerged from chapter 11 bankruptcy protection.

Types of Bankruptcy Filings: Chapter 13

Chapter 13 bankruptcy is often the contingency plan for individuals who do not pass the chapter 7 means test (i.e. their income is not low enough to allow a chapter 7 filing). It involves a 3-5 year structured repayment plan, during which creditors receive some — though not all — of what they’re owed. In some cases, petitioners will file for chapter 13 to structure repayment obligations that cannot be wiped off per a chapter 7 filing.

Types of Bankruptcy Filings: Chapter 9

Chapter 9 bankruptcy is similar to chapter 11, except that it is used by municipalities (e.g. cities, towns, villages, counties, school districts, municipal utilities and taxing districts).

Types of Bankruptcy Filings: Chapter 12

Chapter 12 bankruptcy is similar to chapter 13, except that it is specifically designed to provide protections to family farmers with regular yearly income. As the repayment plan is carried out, the petitioner continues to operate the farm vs. shutting it down, or being forced to sell it.

Learn More

To learn more about different types of bankruptcies, and to clearly understand your options — including the pros and cons — contact the Law Office of Charles H. Huber today. We are here to help!

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