There are several types of bankruptcies in the United States, but the three most common ones are:
- Chapter 7 Bankruptcy: Also known as “liquidation bankruptcy,” Chapter 7 is designed for individuals and businesses with overwhelming debt that they cannot repay. In a Chapter 7 bankruptcy, non-exempt assets are sold or “liquidated” to pay off creditors, and the remaining eligible debts are discharged. This is typically the quickest and most straightforward form of bankruptcy.
- Chapter 13 Bankruptcy: Chapter 13, also known as “reorganization bankruptcy,” is primarily for individuals with a regular income who want to restructure their debts and create a manageable repayment plan over three to five years. This allows debtors to keep their assets while paying back a portion of their debts according to a court-approved plan.
- Chapter 11 Bankruptcy: Chapter 11 is primarily used by businesses, including corporations and partnerships, although individuals with substantial assets or complex financial situations may also file under this chapter. It provides a way for financially distressed entities to reorganize their operations and debts while continuing their business operations. Chapter 11 plans can be quite complex and may require court approval.
There are other types of bankruptcies, such as Chapter 12 (for family farmers and fishermen) and Chapter 9 (for municipalities), but the three mentioned above are the most common for individuals and businesses. The type of bankruptcy you should consider depends on your specific financial situation and goals, and it’s important to consult with a bankruptcy attorney to determine the most appropriate option for your circumstances.