Bankruptcy: What Are the 6 Different Types of Bankruptcy?

Bankruptcy

When you are sitting at the table, staring down, collecting notices, and speculating how you will make things work. Maybe you have only just lost your job, and the debt is piling up to an overwhelming amount. Then you think it—that word you never thought you would have to consider bankruptcy.

In sometimes, your circumstances seem so hopeless that bankruptcy looks like your only option. We know you might feel afraid and backed into a corner, but bankruptcy is not a decision to make unconscientiously. It’s imperative to know exactly what bankruptcy is and the different types of bankruptcies so you can make the best decision for your situation.

What Are the 6 Different Types of Bankruptcy?

The common goal of bankruptcy is to clear the debt; not all bankruptcies are created equal. There are six different types of bankruptcy:

1. Chapter 7: Liquidation
2. Chapter 13: Repayment Plan
3. Chapter 11: Large Reorganization
4. Chapter 12: Family Farmers
5. Chapter 15: Used in Foreign Cases
6. Chapter 9: Municipalities

You may have just looked at this list and zoned out for a second. That’s okay. More than likely, you would only be dealing with the two most common types of bankruptcies for individuals: Chapter 7 and Chapter 13. (A chapter refers to the particular section of the U.S. Bankruptcy Code where the law is found) But we’ll take a look at each type, so you’re familiar with the options.

Bankruptcy Chapter 7 - Liquidation

Complete the dissolution of the debtor's assets to satisfy the creditors from the bankruptcy estate best. The settlement will be entrusted to a bankruptcy administrator appointed by the bankruptcy judge. According to this provision, the majority of bankruptcies are settled. Over-indebted private individuals use only their assets but not their monthly disposable income for debt relief and generally get relief from residual debt within a few weeks. In 2000, approximately 859,000 over-indebted US citizens chose this method. After six years, a procedure according to Chapter 7 can be carried out again.

Bankruptcy Chapter 13 – Repayment Plan / Reorganization

In the case of consumer bankruptcy for private individuals, the debtor must make payments to creditors following a plan approved by the bankruptcy judge. Afterward, the court will waive all remaining debts ( discharge ). In addition to the assets, private individuals must also make their disposable income available to creditors for at least three years. Only around a third of all plans are fulfilled by the debtors; around two-thirds have to be modified or even abandoned due to changing living conditions.

Bankruptcy Chapter 11 – Large Reorganization

The debtor remains in control of his assets and reorganizes an asset manager. He is entitled to submit a restructuring plan within 120 days, which includes distributing certain assets among the creditors. After the deadline, each party can submit such a restructuring plan. For their part of the creditors form a control body. According to this regulation, the insolvency of the Kmart group of companies is currently being processed (as of March 2002).

Bankruptcy Chapter 12 - Family Farmers

This repayment plan permits family farmers and fishermen to avoid selling all their stuff or foreclosing on their property. While it’s similar to Chapter 13, Chapter 12 is a little more flexible and has higher debt limits.

 

Bankruptcy  Chapter 15 - Used in Foreign Cases

Bankruptcy Chapter 15 is used in foreign international bankruptcy issues and gives foreign debtors access to U.S. bankruptcy courts.

 

Bankruptcy Chapter 9 - Municipalities

Bankruptcy Chapter 9 is one more repayment plan that allows districts, cities, towns, schools, etc., to reorganize and pay back what they owe.

For more specific information about bankruptcy laws in your area, visit the United States Courts website.