What Are the Different Types of Bankruptcy?

Written by AskTheLawyers.com™ on behalf of David Shuster with Shuster Law, PLLC.

What Are the Different Types of Bankruptcy?
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Bankruptcy is a court proceeding in which a judge examines the assets and liabilities of the person in question to decide if that person’s debts should be discharged. If you find yourself constantly harassed by bill collectors or credit collection companies, it might be wise to consider bankruptcy. If you are considering filing for bankruptcy, it may help to get a better idea of the different kinds of bankruptcy and their uses. For help choosing the bankruptcy type that’s right for your situation, reach out to a bankruptcy attorney and learn more about your options.

There are five types of bankruptcy, but only two that are commonly used by individuals.

  • Chapter 7: This is one of the most common types of bankruptcy, and generally the preferable one for individuals. Often referred to as a “fresh start” or “clean slate” bankruptcy, when an individual qualifies for a Chapter 7 bankruptcy, they will not be required to repay certain debts and may be able to retain valuable pieces of property such as a car or home. Other exempt items may vary from state to state.
  • Chapter 13: Rather than forgiving debt a la Chapter 7 bankruptcy, a Chapter 13 bankruptcy allows individuals with consistent income to develop a repayment plan for all or part of their debts. Someone who has already filed a Chapter 7 bankruptcy may be eligible to file a Chapter 13 bankruptcy if it becomes necessary.
  • Chapter 11: This is a bankruptcy often utilized by a corporation or partnership to begin paying back debt over time. It is similar to a Chapter 13 bankruptcy, but is intended for businesses rather than individuals.
  • Chapter 12: This a bankruptcy type utilized by family farmers and family fishermen with consistent annual income. It is similar to a Chapter 13 and Chapter 11 bankruptcy in that it involves a proposed repayment plan to occur to creditors over a period of time.
  • Chapter 15: This is a unique kind of bankruptcy, which may be relevant when someone’s debts involve or occurred in more than one country. In this case it may be possible that if an individual’s assets in the United States qualify, the creditor may choose to commence a Chapter 7 or Chapter 11 bankruptcy.

With any kind of bankruptcy, it is likely that your credit score will be affected for a set number of years after the bankruptcy. After that time passes, the bankruptcy should fall off your credit report but can be challenging in the meantime.

In order to determine if you should consider filing for bankruptcy, ask the following questions:

  • Is it likely that you will be able to pay off your debt within the next five years?
  • Have you filed for bankruptcy before?
  • Has it been less than eight years since you last received a debt discharge as a result of filing for bankruptcy?
  • Have you completed a pre-bankruptcy credit counseling course?
  • Do you fail the means test?

If your answer to one or more of the above questions is no, it might be time to consider filing for bankruptcy. Bankruptcy attorneys are well-versed in the different kinds of bankruptcies and their exemptions in various states, so it may help to reach out to an attorney in your area. Despite the stress presented by bankruptcy, it can offer many families and businesses a second chance at a debt-free future.

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