Bankruptcy consists of various “Chapters” under the Bankruptcy Code. When a person files bankruptcy, he or she must choose a Chapter under which to file. For individuals (people, not corporations or other legal entities like partnerships or even cities) there are three common Chapters to choose from. These Chapters are Chapter 7, Chapter 11 and Chapter 13. There is a fourth Chapter that individuals may file under, Chapter 12, but that applies only to people that operate a farm as defined under the Bankruptcy Code and it is much less common.

Chapter 7 is a liquidation bankruptcy and it is for people that want to get rid of their debts, or as many of their debts as legally allowed, and then move on with their lives. In a Chapter 7 case, a bankruptcy trustee is appointed to temporarily take control of the debtor’s property and to decide if there is any property that may be sold to repay creditors. In most Chapter 7 cases there is no such property (these cases are referred to as “no asset cases”) and the trustee reports that there are no assets except those that the debtors are allowed to keep. These cases are usually resolved quickly, within several months.

Chapter 13 is a reorganization of a person’s debts and in these cases the debtor submits a plan of reorganization that must be approved by the Bankruptcy Court. A reorganization plan usually takes 3 to 5 years before a debtor receives a discharge.

Chapter 11 may also be used by individuals but it is much less common for average people. It is more complicated and usually costs more in lawyer fees.

The right Chapter for your situation will depend on your circumstances.

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