This page is general information, not legal advice. CuraDebt is not a law firm and does not provide legal services. For advice about your situation, consult a licensed bankruptcy attorney.
Bankruptcy: What Are The Three Main Types?
Not sure which chapter would even apply to you? Take the 10-second check below.
Chapter 7, Chapter 11, And Chapter 13 At A Glance
People say "the three main types" of bankruptcy, and for consumers and businesses that is accurate: Chapter 7, Chapter 11, and Chapter 13 cover almost every filing you will encounter. Each one does something different. One liquidates, one reorganizes a business, and one sets up a repayment plan for an individual with income. The table below is the fastest way to see where you would fall.
| Chapter | What it does | Who usually files it |
|---|---|---|
| Chapter 7 | Liquidation. Non-exempt assets are sold, qualifying debts are discharged, often in a few months | Individuals with income below the state median who cannot repay |
| Chapter 11 | Reorganization. The filer keeps operating while restructuring debt under a court-approved plan | Businesses, and individuals with debts above Chapter 13 limits |
| Chapter 13 | A three to five year repayment plan; remaining qualifying debt is discharged at the end | Individuals with regular income above the state median |
How To Tell Which Chapter You'd File Under
For individuals, the deciding factor is usually the means test, which compares your average income over the prior six months against your state's median. Below the median, Chapter 7 is generally available. Above it, the court looks at whether you could repay some of the debt over three to five years, which points to Chapter 13. Chapter 11 mostly enters the picture for businesses, or for individuals whose debts exceed the Chapter 13 limits.
Before any of this, federal law requires credit counseling from an approved agency within 180 days of filing. That session exists partly to confirm you have looked at alternatives, and for many people a route like a debt settlement program or debt negotiation resolves the situation without a court filing at all. Results vary and are not typical.
What You Keep, And What Bankruptcy Doesn't Erase
Exemptions decide what you keep. Assets generally protected include your primary home up to a limit, a vehicle used for work, retirement savings, and Social Security. Non-exempt property such as cash, non-retirement investments, jewelry, and second homes can be sold in a Chapter 7 to pay creditors.
Just as important is what bankruptcy does not touch. A discharge typically does not erase federal student loans, most recent taxes, child support and alimony, or debts from certain court judgments. It also does not release a co-signer from a loan they guaranteed. That is a large part of why comparing all of your debt relief options first is worth the hour it takes.
What To Weigh Before You File
Bankruptcy is a legal process with lasting consequences, so treat the decision as a legal one. Map your total debt, sort it into what a discharge would and would not erase, and check whether the debts driving the problem are unsecured. If most of your pressure comes from credit cards, medical bills, or personal loans, a non-court route may reach a similar result with less lasting damage. If the debt is beyond any realistic repayment, bankruptcy may be the honest answer.
"In 25 years I have talked to a lot of people who assumed bankruptcy was their only door, and for some of them it genuinely was the right one. What surprised them was how often the debt causing the crisis was unsecured, the kind that settlement or negotiation can address without a court filing on their record for a decade. I am not anti-bankruptcy. I am against filing it before you have honestly compared it to everything else. Do the boring part first: list every debt, separate what a discharge would erase from what it would not, and talk to a licensed attorney before you decide. The people who slow down at that step tend to make a choice they do not regret."
Eric Pemper, Founder of CuraDebt since 2001
Frequently Asked Questions
What are the three main types of bankruptcy?
For consumers and businesses, the three main types are Chapter 7, Chapter 11, and Chapter 13. Chapter 7 is liquidation, Chapter 11 is business reorganization, and Chapter 13 is an individual repayment plan. Chapter 12 also exists for family farmers and fishermen, but the three above cover almost every filing.
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 liquidates non-exempt assets and discharges qualifying debt quickly, usually in a few months, and is aimed at filers below the state median income. Chapter 13 keeps your property but requires a three to five year repayment plan, and is generally for people with regular income above the median.
Which type of bankruptcy is most common for individuals?
Chapter 7 is the most common consumer filing because it is faster and discharges qualifying debt without a multi-year repayment plan. Chapter 13 is next, chosen by people who earn too much to pass the means test or who want to keep property they might otherwise lose.
What is Chapter 11 bankruptcy used for?
Chapter 11 is a reorganization used mainly by businesses that want to keep operating while restructuring their debt under a court-approved plan. Individuals occasionally use it when their debts exceed the limits allowed under Chapter 13, but it is more complex and costly than the consumer chapters.
How do I know which bankruptcy chapter I qualify for?
It usually comes down to the means test, which compares your six-month average income to your state median. Below the median, Chapter 7 is generally available. Above it, the court looks at whether you could repay part of the debt over three to five years, pointing toward Chapter 13. A licensed attorney can confirm.
What debts are not erased by bankruptcy?
A discharge typically does not erase federal student loans, most recent tax debt, child support and alimony, and debts from certain court judgments such as those involving fraud or DUI. It also does not release a co-signer from a loan they guaranteed. The exact list depends on your case and state.
How long does bankruptcy stay on your credit report?
A Chapter 7 remains on your credit report for ten years from the filing date, and a Chapter 13 for seven years. Both can lower a credit score sharply at first, often toward the low 500s, though the effect lessens as the filing ages and you rebuild credit.
Do I need a lawyer to file bankruptcy?
You are not legally required to hire an attorney, but bankruptcy is a legal process with many forms and deadlines, and mistakes can cost you a discharge or property you could have protected. Because CuraDebt is not a law firm, we suggest consulting a licensed bankruptcy attorney before filing.
Is there an alternative to filing bankruptcy?
Often, yes. If the debt driving the problem is unsecured, such as credit cards, medical bills, or personal loans, debt settlement, debt negotiation, or a debt management plan may resolve it without a court filing. Results vary and are not typical, so compare the options against your own numbers first.
What happens to my house and car in bankruptcy?
It depends on your state's exemptions and the chapter. Exemptions often protect a primary home up to a limit and a vehicle used for work, especially in Chapter 13, which is built to help you keep property. In Chapter 7, non-exempt equity can be at risk. A licensed attorney can tell you what your exemptions cover.
How Do I Compare My Options Without Paying Anything?
Submit the quick form with your approximate debt amount. It takes about a minute and there is no obligation. CuraDebt is a free service that reviews the information you submit and matches you with an independent, licensed debt relief provider, so you can compare your options side by side against your own numbers before you commit to anything.
Related Resources
- Compare all your debt relief options
- How the debt settlement program works
- How debt negotiation works
- How a debt management plan works
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