Why The Different Types Of Bankruptcy Matter

In American law, there are three types of bankruptcy that are commonly utilized in order to address debt concerns. These are known as Chapter 7, Chapter 11, and Chapter 13. Individuals with different circumstances and long-term goals will need to think hard about how they want to proceed, and the advice of a professional familiar with bankruptcy law can be invaluable.

Chapter 7 Bankruptcy

The goal of a Chapter 7 bankruptcy filing is to discharge as much of your unsecured debt as possible. A trustee will be appointed to sell any property you own in order to repay your creditors. The court may apply specific exemptions to avoid leaving you completely destitute, such as allowing you to keep a car in order to get to work. Chapter 7 is generally considered the fastest, with some bankruptcies taking as little as three months to complete. It is, however, also considered the most complex, and some people will not be eligible, particularly if the court judges them to be high earners who are capable of paying their debts in a structured manner.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy filing is designed to give a debtor time to make a structured effort to repay their creditors. In order to be eligible, you must be able to prove some type of income. It's popular with individuals who are trying to halt foreclosures because they can catch up on past due payments through a structured repayment plan.

The downside to pursuing Chapter 13 is that the court will nitpick the repayment plan and may impose less favorable terms. The process typically runs three to 5 years, and any discharge of any remaining debts will only occur once the plan is completed and all payments are made.

Chapter 11 Bankruptcy

Pursuing a Chapter 11 bankruptcy filing is usually the domain of businesses and corporations. The goal of a Chapter 11 proceeding is to reorganize the business and its debts in order to survive and satisfy its creditors. Otherwise, the process is considered similar to Chapter 13.


If you don't run a business, then you can already rule out a Chapter 11 filing. The biggest question is how much of your assets do you want to retain. A Chapter 7 filing takes you and your creditors basically to zero. That's good for folks who are broke, but the well-off may want to go with Chapter 13.