Types of Bankruptcies

Bankruptcy is a legal process for individuals and businesses that can’t pay their debt. After filing, the court decides how much debt, if any, will be forgiven and how the remaining balance will be paid off.

There are different types of bankruptcies. The “best one” depends on your financial circumstances and whether you’re filing as an individual or a business owner. The most common types of bankruptcy are Chapter 7, Chapter 13 and Chapter 11. Knowing which you qualify for is vital to making informed decisions that will successfully address your debt.

“Usually there are some clear signs you may want to file for bankruptcy,” Derek Jacques, a bankruptcy attorney and owner of The Mitten Law Firm, said. Jacques asks potential clients if they’ve exhausted all of their options, including debt settlement or debt relief. He said many clients have already tried other methods, without success.”

Jacques also explains that if you have a large amount of unsecured debt, such as credit card debt, and are unable to make your rent or mortgage payment, bankruptcy may be the best option.

Types of Personal Bankruptcies

The three types of bankruptcy you are likely most familiar with are Chapter 7, Chapter 13 and Chapter 11. Chapters 7 and 13 are the most common for personal bankruptcy.

Chapter 7 offers a chance to liquidate many of your assets to pay off unsecured debt, with the remainder of the debt forgiven. On the other hand, Chapter 13 is for individuals who have enough income to repay much of their unsecured debt. Rather than liquidating assets, it involves a structured plan to pay off your debts over time.

While Chapter 7 offers the possibility of wiping the slate clean in four to six months, Chapter 13 could be a better fit if you have a mortgage and a steady income.

“Chapter 13 is beneficial in many ways, especially if you are facing foreclosure, a reorganization of your debts can help make payments more manageable,” Jacques said. “If you have a steady income, it is a viable option for debt relief.”

Chapter 7: Liquidation for Individuals

Chapter 7 is the most common type of bankruptcy. Of 517,308 bankruptcy filings in 2024, 310,631 were Chapter 7, with 298,049 of those individual filings.

Chapter 7 is called “liquidation” bankruptcy, but in reality more than 95% of are “no-asset” cases. This means the filer has no property that’s worth enough to be sold by the court-appointed trustee to pay off creditors. Most people who file Chapter 7 keep their property and emerge with most unsecured debt discharged. Some debts, such as alimony, child support, certain taxes, property liens, and most student debt, are excluded.

To qualify for Chapter 7, you must pass the means test, in which the court determines that you actually can’t pay your bills. The filing fees total $335 ($245 filing fee, $75 administrative fee, $15 trustee fee). The fees must be paid before the case can go forward, though the court may allow some people to pay in installments. There will be more fees and costs as you proceed.

You can file Chapter 7 multiple times, but you need to wait eight years between filings.

Chapter 13: Reorganization

Chapter 13 is for individuals with reliable income who don’t qualify for Chapter 7. There were 195,724 individual Chapter 13 bankruptcies filed in 2024. Chapter 13 stops foreclosure, allowing filers to keep their home, as well as halting vehicle repossession. Once the court determines a repayment plan, you’ll have to catch up on back payments for all debt. If you don’t, you can still lose your house or car. The plan also includes paying off at least a portion of unsecured debt. Unsecured debt that’s left after the payment plan is completed is discharged.

While filers can ask the court to modify their plan, only about half of Chapter 13 bankruptcies are successfully completed. It costs $313 in fees to file for Chapter 13. Some types of debt that aren’t discharged in Chapter 7 may be discharged in Chapter 13.

Chapter 11 for Individuals

Chapter 11 bankruptcy, once reserved for businesses, is increasingly used by individuals with debts that exceed the limits allowed under Chapter 13, though it remains relatively rare. In 2024, out of 8,884 Chapter 11 filings, 428 were personal bankruptcies.

Chapter 11 has no debt cap, unlike Chapter 13, and no income requirements. It’s designed for individuals with significant debts and high incomes, often used by celebrities, professional athletes, and real estate investors.

Personal Bankruptcy Comparison

Before pursuing bankruptcy, compare Chapter 7 to Chapter 13, and determine which works best for your financial situation.

Types of Business Bankruptcies

There are several different kinds of bankruptcies for businesses, but most fall into the three most common types. Chapter 7 and Chapter 13 for businesses are variations on the personal bankruptcy process. Chapter 11 bankruptcy is generally for businesses that have hit a bad patch and may survive if their operations, along with their debt, can be reorganized.

Businesses that may file for bankruptcy range from sole proprietorships and LLCs (limited liability corporations) to partnerships, professional associations, and corporations.

Chapter 7: Liquidation for Businesses

A business so overwhelmed by financial obligations that it can no longer operate is a good candidate for a Chapter 7 business bankruptcy. The owner surrenders the business to a court-appointed trustee for an orderly liquidation. Unlike a personal Chapter 7 bankruptcy, nothing is exempt; everything goes. Once it’s completed, all obligations – leases, contracts, loans, overdue accounts, credit cards, and other business debts – are written off by creditors, since all business assets were presumably liquidated. While there is no discharge in business Chapter 7, the practical effect is that the business’s assets are liquidated and creditors paid to the extent possible. In 2024, it was the most-used type of bankruptcy for businesses – with 12,582 filings, Chapter 7 accounted for more than 50% of 23,107 business bankruptcy filings.

Chapter 11: Business Reorganization

Chapter 11 allows a business to reorganize, rather than liquidate, and is the second-most common type of business bankruptcy, with 8,456 business filings in 2024. A large business or corporation with assets that allow it to reorganize is more likely to file Chapter 11 than Chapter 7. Some successful examples are air carriers United, Delta, American; car manufacturers General Motors and Chrysler, as well as Marvel Entertainment, which declared bankruptcy in 1996, only to emerge to become the Marvel Universe.

Under Chapter 11, a business can protect itself from creditors while reorganizing operations, debts, and assets. If successful it re-emerges a few years later – often smaller, sleeker, more efficient, profitable – and creditors got a better return than they would have if the business had shut down and liquidated. If the Chapter 11 reorganization fails, liquidation is usually the next step.

Chapter 13: Small Business Repayment Plan

Chapter 13, used mostly for individuals, can be used by sole proprietorships for a business bankruptcy because a sole proprietor and individual are interchangeable under the law. Chapter 13 protects personal assets, such as a home, which would be exposed to seizure if a sole proprietor filed for Chapter 7. Chapter 13 provides a plan to pay off debt, rather than liquidate and put personal assets at risk. The amount that must be repaid hinges on earnings, amount of debt and the value of property owned. It isn’t very common for a small business to file Chapter 13 – of 197,244 Chapter 13 filings in 2025, 1,520 were by businesses.

Other Types of Bankruptcies

The three types of bankruptcies already discussed here are by far the most common, making up around 99% of the bankruptcies filed in 2024. There are, however, carveouts in the Bankruptcy Code for debtors in specialty situations. Of the 517,741 bankruptcies filed in 2024, less than 500 were Chapter 9, 12 or 15.

Chapter 12: For Family Farmers and Fishermen

Similar to Chapter 13, Chapter 12 provides owners of small farms and fishermen who meet certain criteria, including a “regular annual income,” a 3-5-year repayment plan. Because of the seasonal nature of the work and the fact they tend to have larger debts than those filing Chapter 13, Chapter 12 allows more flexibility in structuring payments. It’s also more streamlined, less complicated, and less expensive than Chapter 11.

There aren’t a lot of Chapter 12 cases filed, but the majority of those who do tend to complete their plan. At the beginning of 2023, there were 823 active Chapter 12 cases, and 89 were added that year. At the beginning of 2024, there were 692 active cases, and 165 the previous year had been successfully discharged. Chapter 12 is complicated, and if you own a business that qualifies, it’s a good idea to hire an attorney to help you navigate the rules and financial stipulations.

Chapter 15: For Foreign Creditors

Chapter 15 was added to the bankruptcy code in 2006. It allows more efficient sorting of bankruptcies that involve a person who has debts in more than one country, most including the U.S. Chapter 15 filings are rare, but increasing. There were 342 filed in 2024, an increase from 183 the year before. A Chapter 15 filing is subordinate to a bankruptcy filing in another country, and deals with the U.S. finances involved. If the debtor has significant U.S. assets, it could become a Chapter 7 or 11 filing in the U.S.

Chapter 9: Municipalities

Chapter 9 filings are rare – two were filed in 2024, and one in 2023. Since Chapter 9 was first enacted in 1937, there have been around 700 filings. This type of bankruptcy is for a town, city, county, school district, public improvement district or utility, or other public agency that can’t solve its financial issues by increasing revenue and cutting expenses. Chapter 9 gives protection from creditors while finances and debt payments are reorganized.

Unlike a business, municipalities and other public entities have a fragile balance deriving revenue from those they’re obligated to take care of. Navigating the rules is difficult, and many Chapter 9 filings end up being dropped or thrown out by the court. Detroit became the largest municipality to file Chapter 9, in July 2013, citing $18 billion in debt caused by massive loss of revenue stemming from the collapse of the area’s automotive industry. In the years since, loss of revenue and legal settlements have spurred most Chapter 9 filings, many of which are by public utilities and health care districts.

How to Choose the Right Type of Bankruptcy

If you have so much debt you can’t pay your bills, and are considering the different kinds of bankruptcy, it’s vital that you choose the right one. A court may dismiss your Chapter 7 petition if your income is too high or you don’t meet other criteria. On the other hand, you may not be able to meet the years-long commitment of Chapter 13.

Things to keep in mind when considering the types of bankruptcy are:

• Is the majority of your debt unsecured (credit cards, medical bills, student loans)? Or is it secured – a mortgage, vehicles, vacation property?
• What is the total amount of your debt?
• Do you have a steady and regular income?
• Are your financial problems temporary or are they long-term?
• Have you tried other debt relief options?
• Are you filing personal bankruptcy or as a business?

Once you’ve taken a serious look at your situation and can answer those questions, do some in-depth research on the types of bankruptcy, the process, and what it will take to successfully file for bankruptcy. It involves a lot of documents and deadlines, and missing one may get your case thrown out. Knowing what you’re doing, and why, is essential to success.

Below are general guidelines for circumstances – either some or all – that may make a type of bankruptcy the right one for you.

Chapter 7 Is best if you:

• Have a low income.
• The majority of your debt is unsecured.
• You don’t own a house.
• Your financial issues are long-term.
• You’re filing as a small business that can’t meet its debt obligations.

Chapter 13 is best if you:

• Own a house and other secured assets.
• You won’t pass the means test because your income is determined to be enough to pay your debts.
• Your financial issues are temporary.
• Can stick to a repayment plan.
• You are filing as the sole proprietor of a business.

Chapter 11 if best if you:

• Are filing as owner of a business that is large enough to have assets that can help cover some or all of your debt if finances are reorganized.
• If filing as an individual, you have unsecured debt of more than $465,275 and/or secured debt of more than $1,395,875.
• If filling as an individual you have a very high income.

No matter which type of bankruptcy you qualify for, it’s a good idea to hire a bankruptcy lawyer who can help you navigate the complicated process, documents and timetable.

Choosing the Best Path Forward

Before you decide to file for bankruptcy, consider other debt relief options. Talking to a  counselor at a nonprofit credit counseling agency is a good way to understand where you are financially and if bankruptcy is necessary.

If you still think bankruptcy is the best way to go, be sure you choose the right type, or the court will dismiss your case, and you’ll be back where you were before you were, or worse.

It’s also important to understand the financial consequences of bankruptcy. A Chapter 7 bankruptcy will remain on your credit report for up to 10 years, while a Chapter 13 bankruptcy will stay for 7 to 10 years. This can affect your ability to get credit, impact insurance premiums, and more.

“The initial fallout from a bankruptcy filing can be difficult,” Jacques, the bankruptcy attorney, said. “However, if you practice sound financial planning and debt management, you can still end up with the ability to obtain loans for bigger purchases before the bankruptcy is removed from your credit report. It can really be the rock bottom on the road to financial recovery.”

Before you file for bankruptcy, have a plan for your post-bankruptcy finances, so that you can emerge from it knowing how you’ll build a solid financial foundation.

Seek professional legal or financial advice. Explore all the available resources to make a sound decision and to guide you through the bankruptcy process.