The following program was produced by the United States Courts. There are three main types of bankruptcy cases. These are referred to by their chapter number in the Bankruptcy Code. Chapter 7, Chapter 11 and Chapter 13. The Bankruptcy Code is federal – not state – law, and bankruptcy cases are filed in the United States Bankruptcy Court, not in a state court. The most common types of cases for individuals are Chapter 7 and Chapter 13. A “Chapter 7” is a liquidating bankruptcy. In return for having debts discharged, meaning the debtor is no longer legally obligated to pay them, the debtor must turn over certain property to the Chapter 7 bankruptcy trustee. The law allows the debtor to keep some property as exempt so the debtor can make a fresh start. In most Chapter 7 cases, all property is exempt, and so the debtor keeps all of the property. Those cases are sometimes called “no-asset” cases. If a debtor has more assets that can
be exempted, the trustee sells the non-exempt property and distributes the proceeds to the creditors according to priorities established by law. Very often there’s not enough money to pay
for anything more than the costs of administration, and so the creditors receive nothing. The principal advantage of Chapter 7 is that the debtor emerges from bankruptcy without
any future obligations on his or her discharged debts. Some debts cannot be discharged. For example, debts incurred through fraud or debts for child
support and alimony. A “Chapter 13” case is often used by individuals, who want to catch up past due mortgage or car loan payments and keep their assets. In Chapter 13, the debtor must propose
in good faith to pay all or part of the debts from future income over a period of three to five years. If the court approves the plan, the debts may be settled in this manner even if some creditors object to the plan. If the debtor makes the required payments, he or she will be able to keep his or her property. Chapter 13 can be a better choice than
Chapter 7 for those who are behind on their home mortgage
or car loans, as well as for other reasons. For instance, some of the debts that cannot
be discharged in a Chapter 7 can be discharged in Chapter 13. Also, the debtor can pay some non-dischargeable federal taxes over the term of the Chapter 13 plan
without interest. Chapter 13 can only be used by an individual
debtor, not by a corporation. An individual engaged in business not as a corporation might use Chapter 13 to pay debts or settle them over a period of time while he or she continues to own and operate
the business. However, Chapter 13 can be used only if the total debts owed are less than certain limits for secured and unsecured debts. Another type of bankruptcy case is a Chapter
11 Reorganization. It is generally used by businesses but can
be used by individual debtors, who do not qualify for Chapter 13 because their debts exceed the Chapter 13
limit.