Chapter 7

Chapter 7 is the most common type of consumer bankruptcy. It is also known as liquidation under the bankruptcy code. Any person or corporation may file a Chapter 7 bankruptcy. Once a bankruptcy is filed, under federal law there is an automatic stay. This "stay" prevents creditors from initiating or continuing any efforts to collect any debts that you owe or to seize any property to satisfy debts. In this way, a bankruptcy filer may prevent a foreclosure or a repossession. However, it is important to note that the process may be very complicated since it deals with federal statutes. Not every bankruptcy filer will qualify to have every debt discharged.

To obtain a discharge, the debtor must be insolvent. That means the debtors disposable income after paying for ordinary living expenses is insufficient to also pay debts to creditors. The primary goal of Chapter 7 bankruptcy is to protect a debtor who is overburdened with debt from creditors.

In a Chapter 7, most debts are wiped out. Any unsecured debt is erased. Civil judgments may also be rendered uncollectible and wiped out. A debtor may also have the option to pay secured debts to retain major assets such as homes and cars. There are limits on what assets a debtor may keep. These limits are set by State and Federal laws and may change from year to year with new legislation.

Chapter 13

Chapter 13 bankruptcy is the second most common type of bankruptcy. In a Chapter 13, debt payments are restructured. In this restructuring it is possible for some debts to be erased and others are partially paid over time. Chapter 13, in essence, allows debtors to pay off some debt by allowing additional time to pay. In most cases, a Chapter 13 is filed to prevent a foreclosure when a debtor has fallen behind on the mortgage.

A Chapter 13 is not usually beneficial to a debtor whose debt is largely unsecured and consisting of debts like medical bills or credit cards. In such cases a Chapter 7 is recommended. Both a Chapter 7 and a Chapter 13 will adversely affect your credit rating.

Chapter 11

Chapter 11 of the bankruptcy code is commonly referred to as "Reorganization." This is the type of bankruptcy is primarily for corporations and partnerships, or for individuals with large debts and assets who do not meet the strict asset/debt limitations of Chapter 13. Chapter 11 is a very complicated type of bankruptcy and it usually requires the assistance of a lawyer. However, a Chapter 11 bankruptcy offers greater flexibility and options than other chapters. One of the great advantages of a Chapter 11 is that it allows the Debtor to remain in possession of all of its assets and ongoing businesses. However, a drawback is the cost. The court filing fee for a Chapter 11 is far greater than the fees in a Chapter 7 or a Chapter 13 (over $800). The key to a successful Chapter 11 case is pre-bankruptcy planning to come up with a comprehensive plan of business reorganization that will be accepted by a bankruptcy trustee.

Chapter 12

Chapter 12 is the Chapter of the bankruptcy code specific to the family farmer. Under Chapter 12 the farmer's debts are adjusted if the farmer has regular income. Under Chapter 12 an individual or couple or, sometimes, a corporation or a partnership may file a petition for relief. Chapter 12 does have some eligibility requirements including a debt ceiling of $1,500,000 and income of at least 50% from farm sources. Moreover, at least 80% of all debt must be farm related.