What kinds of bankruptcy are there?

There are four principal kinds of Bankruptcy – Chapter 7, Chapter 13, Chapter 11 and Chapter 12.

Chapter 7 cases are the most common form of bankruptcy. Chapter 7 is available to both consumers and businesses. This form of bankruptcy has traditionally been referred to as “straight” bankruptcy or “liquidation” bankruptcy. Because the bankruptcy law is generous regarding what stuff you are allowed to keep even though you have filed a Chapter 7, in most consumer cases  debtors lose nothing other than their debt. From start to finish, the typical Chapter 7 case in the Western District of Pennsylvania lasts 4 to 6 months.

Chapter 13 cases are known as “Wage Earner Reorganizations”.  Chapter 13 Bankruptcy is available to individuals and unincorporated businesses such as sole proprietorships, which have a regular source of income. Chapter 13 is typically used when there are significantly delinquent long-term debt such as; auto payments, mortgage payments, and/or delinquent taxes. For example, a mortgage delinquency of $12,000 could be cured over 60 months with a monthly payment of $200 per month rather than having to pay $12,000, immediately. The typical Chapter 13 client also has significant unsecured debt. Depending upon the clients’ income and expenses, the amount paid to resolve unsecured debts can range from zero to full payments of such debts; however, no additional interest is typically paid on unsecured debt once a Chapter 13 is filed. A Chapter 13 requires a repayment period of between 36 and 60 months.

Chapter 11 cases, typically referred to as “Business Reorganization” cases, are typically bankruptcy cases filed by partnerships, corporations, and other business entities. While not typical, individual debtors may choose to file for Chapter 11 Reorganization under the appropriate circumstances.

Chapter 12 cases are “Family Farmer or Fisherman Adjustments of Debt”. Chapter 12 is available when a significant portion of a household income is earned through farming were commercial fishing. It is not available for a “hobby farm” situation. Procedurally, Chapter 12 cases resemble Chapter 13 wage earners reorganizations. However, the necessary documentation and paperwork is far more extensive than in a Chapter 13 case. In Chapter 12 cases, the Bankruptcy Court has the power to adjust mortgage debt to a greater degree than would be otherwise available and the Court focuses upon annualized income rather than monthly income.

Choosing the appropriate bankruptcy chapter for your individual needs is a very important decision, which should be made in consultation with an experienced bankruptcy attorney.