2 Types of Personal Bankruptcy and 4 Types of Business Bankruptcy


Bankruptcy can be defined as a legal procedure that helps a debtor or a business to make a fresh financial start by either paying back or getting discharge from the debts. Upon successful completion of the bankruptcy proceedings, the debtor or the business gets relieved of the debt obligations. This article discusses about the different types of bankruptcy, precisely, different chapters of business and personal bankruptcy.

Types of personal bankruptcy

You can file either Chapter 7 or Chapter 13, when you have huge amount of multiple debts and you've failed in all your attempts to repay them. These 2 types of bankruptcy are given below.

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o Chapter 7

You may get discharge from some or all your debts if you file a Chapter 7 bankruptcy. However, you need to pass the means test as it is the prime criterion that you need to satisfy in order to file Chapter 7. Means test determines that the debtor's income is less than the median income (for his/her family size) in his/her state. After filing Chapter 7, your assets are liquidated to repay your debts.

o Chapter 13

You should have a regular income in order to file Chapter 13. By filing Chapter 13, you can repay some or all your debts with the help of a 3-5 year repayment plan. You can choose Chapter 7 when you have secured debts (such as, a car loan) to repay. This is a better option if you want to keep your assets.

Types of business bankruptcy

The different chapters of business bankruptcy are discussed below.

o Chapter 7

When a business files Chapter 7, the business assets are liquidated in order to pay off the debts. The overall procedure is monitored by a trustee appointed by the bankruptcy court.

o Chapter 9

A municipality can file Chapter 9 when it has huge debt to repay. When it files Chapter 9, the bankruptcy court helps the municipality to reorganize the debt and also provides protection from its creditors.

o Chapter 11

Chapter 11 helps a business to continue with its operations along with repaying the debts under the guidance of a bankruptcy court. However, only large companies can take help of Chapter 11 as it is quite expensive.

o Chapter 13

A business can file Chapter 13 when it wants to protect its assets. It is suitable for sole proprietors or small scale businesses that can retain non-exempt assets and repay the creditors with the help of a repayment plan.

It is advisable that you contact a bankruptcy attorney when you're left with no other options to repay debts. Depending on the financial condition, a lawyer can help you to choose the most suitable one among the different chapters/ types of bankruptcy.

With the help of a bankruptcy lawyer, at first, you need to file a petition to the court that includes a list of your creditors and how much you or your business owes to them. Then, a trustee is appointed by the bankruptcy court after it approves your petition. The trustee is responsible to administer the entire process till you repay or get discharge from your debts.


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