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The Differences Between the 3 Most Common Types of Bankruptcy

There are six different chapters of bankruptcy written into United States bankruptcy law. Each chapter has advantages and disadvantages. You should conduct research and hire an experienced bankruptcy professional, like those at Kirkpatrick & Associates, to help you determine which type of filing is right for you. If you are exploring your bankruptcy options, you might be looking for some general information regarding the most common types. We offer help for Chapter 7, 11, and 13.


Chapter 7

A Chapter 7 bankruptcy filing means you intend to liquidate (sell) your assets. This is the most common type of filing in the US, and if you hear someone mention he or she is filing for bankruptcy, it probably means Chapter 7.

Businesses and individuals alike can file for Chapter 7 bankruptcy. A business may file for bankruptcy if the organization has extensive debt and can no longer serve customers or pay creditors. A business owner can be forced to file by demanding creditors. At that time, a Chapter 7 Trustee will be appointed to oversee the process and evaluate the financial situation of the institution. Large businesses may divide sections of the company to sell to interested companies before complete liquidation.

With Chapter 7, individual filers are allowed to keep exempt property. Property claimed as exempt varies from state to state, so make sure to check your local laws regarding this factor. Leftover assets are sold to repay debts and some debts may be discharged during the process. You will not be discharged from child support, student loans, property taxes, and court fines during a Chapter 7 filing. Filing for bankruptcy will show on your credit score for up to 10 years and will affect your access to credit in the near and distant future.

Chapter 11

Chapter 11 allows corporate entities to reorganize assets and operation proceedings. Chapter 11 is available for individuals and businesses, just like Chapter 7; however, it is most commonly used for commercial organizations. A Chapter 11 filing allows the business to continue operating regardless of the debt. The person in control of the operation is called the debtor in possession. Some courts require supervision for the debtor in possession if a Trustee does not take over.  During the bankruptcy process, the business must identify ways to keep thriving. This might include acquiring new loans to help earnings or rejecting and cancelling contracts. Each situation is unique. If debts are larger than assets, restructuring may mean owners are left with nothing in the end.

Chapter 13

If you have a regular source of income, Chapter 13 might be the right choice for you. This type of bankruptcy allows the individual to reorganize assets and create a plan for rehabilitation. The debtor must create a plan for debt consolidation and the court must approve the plan. Chapter 13 does not relieve large debt. Instead, you can stop a foreclosure, receive a super discharge of non-exempt debts under Chapter 7, and modify debt.


There are many complicated parts of filing for bankruptcy. Title 11, the United States Code for bankruptcy, goes much more in depth on these topics than the information above. Schedule a meeting with a bankruptcy lawyer at Kirkpatrick & Associates to discuss your personal financial situation and your options.

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