Different Kinds of Bankruptcy
Bankruptcy Is Not A ‘One-Size-Fits-All’ Solution
A variety of bankruptcy types make up the overall phenomenon of debt relief through bankruptcy courts. Some types are primarily for individuals; others are more common for businesses or farms. Each of these types of bankruptcy (except the last one) represents a chapter of the U.S. Bankruptcy Code that spells out the details of each.
Chapter 7: This is the most common and popular form of bankruptcy and is usually used for personal bankruptcies. It is also called liquidation bankruptcy, but bankruptcy exemptions are often sufficient to prevent people who file bankruptcy from having to give up any personal property. At the end of a Chapter 7 process, lasting just a few months, a debtor may receive a discharge eliminating much or all debt.
Chapter 13: This is also most often for individuals, not businesses. A Chapter 13 involves repayment of some or all debts affordably over three to five years, including court fees and legal fees. By the end, the debtor should have repaid all back secured debt (such as unpaid mortgage premiums) and some or most unsecured debts at greatly reduced interest rates.
Chapter 11: Typically used by businesses with large debt loads, this form of bankruptcy allows for relief from collection efforts by creditors while a business remains in operation and gets back on its feet. In the words of Investopedia, “involves a reorganization of a debtor’s business affairs, debts and assets.” Corporations “buy time” to restructure their debts; meanwhile, customers of businesses in Chapter 11 bankruptcy may notice very little difference. Chapter 11 takes burdens off of businesses in distress.
Chapter 12: This is similar to a Chapter 13 or 11 tailored specifically to the scale of family farmers and family fishermen. Family farmers and fishermen may keep their farms or fishing assets, continue operating and experience debt relief.
Chapter 15: This form of bankruptcy allows for cooperation between U.S. and foreign bankruptcy courts and interested parties in cross-border bankruptcy cases.
Chapter 20: This one is not actually in the U.S. Bankruptcy Code; rather, it is a nickname for a strategy of filing for Chapter 7 and then Chapter 13, or Chapter 13 and then Chapter 7. It offers advantages for some individuals or businesses under unique circumstances.
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