What are the different types of bankruptcy cases?

There are three basic types of bankruptcy cases: A Chapter 7 liquidation, a Chapter 13 "wage earner's bankruptcy," and a Chapter 11 reorganization. These basic types of bankruptcy cases are named after the chapters in the Bankruptcy Code and are appropriate to different situations. It is important to discuss your situation with a bankruptcy attorney that can explain which Chapter might be right for you.

A Chapter 7 bankruptcy case may be used to eliminate most debts of an individual. Chapter 7 Bankruptcy is often referred to as a “liquidation bankruptcy”, because a court appointed trustee can sell any of the Debtor’s non-exempt assets and then apply the proceeds of the sale to pay your creditors. In return for the liquidation, a debtor receives a discharge, which is a court order stating that the debtor is released from their obligation to pay all dischargeable debts in their bankruptcy case. It also stops creditors from ever contacting the debtor and attempting any collection efforts of those discharged debts. However, a bankruptcy attorney must explain to you what exemptions you may have in your assets. In many cases, there may be little to no equity in these assets after applying the exemptions, therefore, there is no liquidation but the Debtor does receive a discharge and does not pay their creditors back. Their discharge order can also state that they are released from their obligation to pay all dischargeable debts in their bankruptcy case. Their order also stops creditors from ever contacting the debtor and attempting any collection efforts of those discharged debts.

 A Chapter 13 bankruptcy case may be used by an individual, who has regular income, to pay back debt over a period of time, with a payback period of up to five years, and is often used by debtors who seek to save their house or other real property from foreclosure. An individual who has experienced some financial hardship and has fallen behind with their mortgage payments, car loan payments and such can make these “arrears” payments each month to their bankruptcy trustee in accordance with a Chapter 13 Plan that their attorney files with the bankruptcy court. 

A Chapter 13 can also be used purely as a Debt Consolidation tool. If you are unable to pay your debts because the minimum payments are unaffordable to you, a Chapter 13 case can alleviate the numerous payments that you are making to several creditors by combing them into one monthly plan payment. It allows the Debtor a repayment period, usually up to five years. A Chapter 13 bankruptcy can be viewed as personal reorganization because in a Chapter 13 proceeding, you deal with ALL of your debt obligations at once. You consolidate all of your payments into one Trustee payment which you make each and every month. It also makes all of the late fees, overlimit fees and interest rates STOP!

Creditors must abide with the requirements of bankruptcy law. In Chapter 13 bankruptcy, your repayment plan is not based upon each creditor’s monthly payment amount or what that creditor is willing to accept, it is based on what your individual circumstances allow you to afford within the budget set forth in your petition, pursuant to Bankruptcy law.

A Chapter 11 reorganization case may be used by a business or an individual to reorganize its financial affairs while continuing to own, manage, and operate its property.

The requirements and rights involved in these different types of bankruptcy cases vary greatly and how they may apply to a particular case can also vary greatly depending on the particular circumstances and parties involved in a case. It is important to discuss your individual circumstances with a bankruptcy attorney to determine which bankruptcy is right for you.