What Are the 3 Types of Personal Bankruptcy?
There are three kinds of bankruptcy that apply to individuals.
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There are many different kinds of bankruptcy. Here are the 3 types of personal bankruptcy for individuals.
Transcript
Chapter 7 Bankruptcy
First, we're talking about individuals here. First, the simplest form of bankruptcy is a Chapter 7 bankruptcy, and that's a bankruptcy where an individual files, typically keeps everything they own because all their stuff is exempt so they don't give it up to creditors, and they get a discharge in about 60 to 90 days after filing bankruptcy, and they walk away from their debts. That's Chapter 7.
Chapter 13 Bankruptcy
Chapter 13 is also for individuals. It comes into play where you're looking to bandage certain types of debts that are not dischargeable in 7 or if you're trying to protect something that is not exempt, you need to pay the value of that exempt item over time. If your income is too high, so that you need to be in a Chapter 13 and payout, what's called a Chapter 13 plan, over time, and so, we call it a planned bankruptcy. Chapter 13 is a bankruptcy where you have a 3 to 5 year plan, and every month you make payments to a Chapter 13 trustee's office and they distribute those funds to your creditors. Typically, much less than you owe and only what you can afford to pay out of your Chapter 13.
Chapter 11
Chapter 11 bankruptcy, we hear about, that's largely for businesses who reorganize. It is also for individuals with a lot more debt. There are limits to how much debt you can have to be in a Chapter 13. Most folks fit inside those limits. Most American consumers have a debt amount that is underneath the limits for Chapter 13. But if you're over, you're in a Chapter 11, and that is an unusual conversation to be having with individuals. It does happen.
Those are the three kinds of bankruptcies that apply to individuals. Chapter Seven, which is just file and walk away. Chapter 13, payment plan over time. Chapter 11, also payment plan over time, but more complicated and more debt and more expensive, but far less common.
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