What Type of Bankruptcy Should I File?
Bankruptcy protection in the United States involves several “types” of bankruptcies governed by different Chapters of the Bankruptcy code. Maybe you’ve heard of Chapter 7 or Chapter 13 bankruptcy. Those phrases are used as short form but are also technically correct. For Individuals, the different types of bankruptcy are governed by the different chapters. As bankruptcy lawyers, we often are asked about the different types of bankruptcy. With respect to individuals filing bankruptcy, the following types are available.
Individuals who meet the qualifications may file under one of four different chapters of the bankruptcy code. These include:
- Chapter 7 — Liquidation
- Chapter 11— Reorganization
- Chapter 12— Voluntary repayment plan for family farmers or fishermen
- Chapter 13— Voluntary repayment plan for individuals with regular income
Chapter 7 Bankruptcy for Individuals
Chapter 7 bankruptcies are almost always the most common form of bankruptcy case filed by individuals. This type of bankruptcy is referred to as a liquidation where yours debts are discharged after non-exempt property is liquidated. Whatever non-exempt assets you have will be liquidated and used to satisfy creditors. After those assets are utilized, any remaining debts will be discharged (with some exceptions). While Chapter 7 is available to individuals, there are several specific eligibility requirements. To learn more about who is eligible to file Chapter 7 bankruptcy, check out our article on the topic.
If successful, debtors seeking a Chapter 7 bankruptcy will receive a discharge of their debts in exchange for liquidation of specific assets as determined by the court. The court-appointed case trustee administers the case and distributes non-exempt assets to creditors. As mentioned above, Chapter 7 bankruptcies involve liquidation as well as the elimination of most unsecured debt like credit cards, medical bills, cash advances, service provider bills, and certain other debts. Since Chapter 7 bankruptcy is a liquidation, you can lose property by filing for bankruptcy protection under Chapter 7. Not all assets are subject to liquidation if you file for Chapter 7 bankruptcy but many are and will be liquidated to satisfy debts. It is important to speak with a bankruptcy lawyer regarding property exemptions often governed by State law.
Chapter 13 Bankruptcy for Individuals:
Bankruptcies under Chapter 13 are often referred to as reorganization bankruptcies. Chapter 13 authorizes eligible individuals to develop a reorganization plan to repay all or part of their debt to creditors. You can think of this type of bankruptcy as entering into a renegotiated payment plan with creditors versus liquidating whatever non-exempt assets you have left and discharging the debts. The debts still remain in place but you have the option to renegotiate to determine a plan you can complete. With Chapter 13, you will work out a plan with your creditors and still continue to repay them albeit under different terms.
Chapter 13 bankruptcies are preferred or required in a few instances. If you are not eligible for Chapter 7 either due to means testing, a prior Chapter 7 or some other reason, Chapter 13 is going to be your only option. If you have transferred property to a friend or relative in the last 5 years, speak with your lawyer because these types of transfer can also impact your Chapter 7 filing and it may make more sense to file under Chapter 13.
Chapter 12 Bankruptcy for Individuals
Filing for bankruptcy under Chapter 12 is a reorganization bankruptcy available to family farmers and family fishermen to restructure their finances, and avoid liquidation or foreclosure.
Chapter 15 Bankruptcy for Individuals
Filing for bankruptcy under Chapter 15 are the least common, and are filed by foreign debtors from countries outside of the United States.
What Type of Bankruptcy Should You File?
As you can see, determining what type of bankruptcy you should file can be overwhelming. It’s one of the main reasons we advise people to call a bankruptcy lawyer if they are considering bankruptcy. We offer free consultations and since we deal with eligibility determinations regularly, give us a call if you are in Ohio or Michigan. If you are in a different State, we recommend you find a local bankruptcy lawyer who offers free consultations to help determine what Chapter you should file under.