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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

How Many Types of Bankruptcies Are There?

How Many Types of Bankruptcies Are There?

Bankruptcy is not an unfamiliar term to most people in the US. It is usually an option for people who are unable to settle their debts. It helps in making a plan that will enable them to get rid of their debts. In the United States, it is handled in the federal courts. 

The most common types of bankruptcy are Chapter 13 and Chapter 7 because they are readily available to people. Generally, there are six different chapters of bankruptcy in the United States. The section below explains what you need to know about each chapter. 

Types of Bankruptcies 

The United States Bankruptcy code comprises five chapters for debts owed in the country, while the sixth type has to do with debt involving more than a country. 

Furthermore, each chapter applies to a specific type of debtor as it has a unique goal.  Below are the details of the bankruptcy options in the United States: 

  • Chapter 7 

This type of bankruptcy is available for Businesses or individuals. It can also be referred to as liquidation. This chapter allows debtors to discharge most debts after giving up their nonexempt assets. One of the major requirements for this type of bankruptcy is that the state's median income must be more than the debtor’s income. Discharging debts in chapter 7 bankruptcy is not automatic. You can only walk away from eligible debits. 

  • Chapter 9 

Chapter 9 bankruptcy is designed for municipalities looking to get out of their debts. With this chapter, they can form a plan that will allow them to clear their debt without disposing of their properties or assets. How does this type of bankruptcy help in reorganizing debts? It helps in debt restructuring by minimizing interest rates, extending repayment terms, and trimming down the principal amounts. 

  • Chapter 11 

Chapter 11 bankruptcy is also known as reorganization.It helps businesses and individuals to restructure their debts.  With this type of bankruptcy, you are allowed to repay your debts by following a newly drafted plan. 

It is worth mentioning that this type of bankruptcy does not put your properties at risk. However, it is costly, making it suitable for only wealthy individuals and businesses. 

  • Chapter 12 

This chapter is designed for fishermen, family farmers, and others with a stable income who desire to restructure their debts.  One of the advantages of Chapter 12 bankruptcy is that it is not complicated. It is also beneficial to farmers with larger debts who are not qualified for the wage-earner classification requirements of chapter 13 bankruptcy. 

Furthermore, the repayment period usually spans over three years. In some cases, the court can extend this period to five years if it is justifiable. 

  • Chapter 13

Like chapter 7 and chapter 11, this bankruptcy type is open to people willing to reorganize their debt loads. The typical repayment period under this chapter ranges from three to five years. One of the advantages of chapter 13 is that it does not put your home at risk of foreclosure. 

To qualify for chapter 13 bankruptcy, you must have a regular or stable income. Apart from that, debtors' eligibility also hinges on the amount they owe. For instance, secured debt filing under this type of bankruptcy must not be more than $1,184,200 while unsecured debt must be within $394,725. 

  • Chapter 15 

In 2005, this chapter was included in the United States bankruptcy code. It is meant for foreign debtors with properties in different countries.  In other words, it offers a way of tackling cases involving different countries. Chapter 15 bankruptcy enables a foreign debt and foreign court to work together with the United States' bankruptcy courts. 


Bankruptcy is not a straightforward process; therefore, you need to understand the requirements and what each of them entails. If you are considering this option, you should see a bankruptcy attorney.  Furthermore, you are also required to go for credit counseling before you formally start this procedure. 



Jim McClaflin, EA, NTPI Fellow, CTRC
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