6 Types of Bankruptcy Explained: Complete Guide
The U.S. Bankruptcy Code contains six distinct chapters for debt relief. Chapter 7 and Chapter 13 handle most individual cases. Chapter 11 serves businesses and high-debt individuals. Chapter 12 exists exclusively for farmers and fishermen. Chapter 9 covers municipalities. Chapter 15 addresses international cases.
| Chapter | Who Can File | Primary Purpose |
|---|---|---|
| Chapter 7 | Individuals, businesses | Liquidate assets, discharge debt |
| Chapter 13 | Individuals only | Repayment plan over 3-5 years |
| Chapter 11 | Businesses, high-debt individuals | Reorganize while operating |
| Chapter 12 | Family farmers, fishermen | Specialized repayment plans |
| Chapter 9 | Municipalities only | Restructure municipal debt |
| Chapter 15 | Foreign debtors | Cross-border insolvency |
Chapter 7: Liquidation Bankruptcy
Chapter 7 is called liquidation bankruptcy because a trustee can sell your nonexempt assets to pay creditors. In practice, most Chapter 7 cases are no-asset cases where exemptions protect everything you own. The process takes 90 to 120 days from filing to discharge.
Eligibility requires passing the means test or earning below your state's median income. The 2024 median for a family of four ranged from $63,428 in Mississippi to $117,715 in California. Earn above median and you might still qualify after deducting allowed expenses.
Americans filed 433,658 Chapter 7 cases in 2024. The chapter eliminates credit card debt, medical bills, personal loans, and most other unsecured obligations. Student loans and recent taxes typically survive.
Chapter 13: Wage Earner Reorganization
Chapter 13 creates a 3 to 5 year repayment plan supervised by a trustee. You keep all property while catching up on mortgage arrears, car loans, and priority debts. Unsecured creditors receive whatever your disposable income allows after paying secured and priority claims.
Only individuals with regular income can file Chapter 13. Debt limits apply: unsecured debt cannot exceed $465,275 and secured debt cannot exceed $1,395,875 as of 2024. These limits adjust periodically for inflation.
Chapter 13 works best for people behind on mortgage payments who want to keep their homes. The plan lets you cure arrears over time while maintaining current payments. Foreclosure stops the moment you file.
Chapter 11: Business Reorganization
Chapter 11 allows businesses to continue operating while restructuring debt. The debtor typically remains in control as debtor-in-possession, running daily operations subject to court oversight. Creditor committees participate in plan negotiations.
The process is expensive and complex. Attorney fees routinely exceed $100,000 for small cases and can reach millions for large corporations. Subchapter V, added in 2019, streamlines Chapter 11 for small businesses with debts under $7.5 million.
Individuals can file Chapter 11 when their debts exceed Chapter 13 limits. This individual Chapter 11 option serves high-income earners or those with substantial business debts who need more flexible repayment terms.
Chapter 12: Family Farmer and Fisherman
Chapter 12 combines features of Chapter 11 and Chapter 13 specifically for agricultural operations. Family farmers and commercial fishermen with regular annual income can restructure debts while continuing operations.
Debt limits are higher than Chapter 13. Family farmers can have up to $11,097,350 in total debt. Fishermen can have up to $2,268,550. At least 50% of the debt must arise from farming or fishing operations.
The chapter recognizes seasonal income patterns. Repayment plans can accommodate harvest cycles and fishing seasons rather than demanding equal monthly payments year-round.
Chapters 9 and 15: Municipal and International
Chapter 9 exists solely for municipalities. Cities, counties, school districts, and similar governmental units can restructure debt without state approval for every decision. Detroit's 2013 filing remains the largest municipal bankruptcy in history at $18 billion.
Chapter 15 handles cross-border insolvency cases. When a foreign company has assets or creditors in the United States, Chapter 15 coordinates the U.S. proceedings with the main case in the debtor's home country.
Neither chapter applies to typical individual or business debtors. They serve specialized needs arising from municipal finance and international commerce.
"Choosing the right bankruptcy chapter can mean the difference between keeping your home and losing it, or saving your business versus shuttering it." — Jeffy Goetz, Bankruptcy Attorney
FAQ
What is the most common type of bankruptcy?
Chapter 7 is the most common bankruptcy type, accounting for about 70% of all consumer filings. It offers the fastest path to debt discharge, typically completing in 90 to 120 days.
Which bankruptcy type is best for small businesses?
Subchapter V of Chapter 11 was designed specifically for small businesses with debts under $7.5 million. It offers streamlined procedures and lower costs than traditional Chapter 11.
Can I choose which type of bankruptcy to file?
Your options depend on income, debt levels, and entity type. Individuals typically choose between Chapter 7 and Chapter 13. Businesses usually file Chapter 7 or Chapter 11. Specific qualifications determine eligibility for each chapter.
What is the difference between Chapter 7 and Chapter 11?
Chapter 7 liquidates assets to pay creditors and then closes the business or discharges individual debt. Chapter 11 reorganizes debt while the business continues operating, allowing survival and eventual emergence from bankruptcy.
Who can file Chapter 12 bankruptcy?
Chapter 12 is exclusively for family farmers and fishermen with regular annual income meeting specific debt thresholds. At least 50% of debt must arise from farming or commercial fishing operations.
What happens in Chapter 9 bankruptcy?
Chapter 9 allows municipalities to restructure debt while continuing to provide public services. Only cities, counties, school districts, and similar governmental entities qualify. State law must authorize the filing.
Updated 2026-01-27