When bills pile up and options feel limited, understanding the different types of bankruptcies can help individuals and businesses choose a structured way to reset their finances. In the United States, bankruptcy is a legal process under federal law that allows people and companies who cannot pay their debts to either eliminate or reorganize what they owe under court supervision. Knowing how the main chapters work, who they are for, and what they do to your assets and credit is essential before taking this step.
If you are weighing whether bankruptcy is right for you, speaking with a qualified professional can help you review your debts, assets, and long‑term goals so you choose a path that protects as much of your future as possible.
Taking time now to learn how each chapter works could be the first step toward a more stable financial life.
What Bankruptcy Actually Does
Bankruptcy is not simply “walking away” from debt; it is a court‑supervised process where a judge and a trustee apply federal rules to decide how your debts are handled. Once a case is filed, an automatic stay usually stops most collection actions, including calls, lawsuits, wage garnishments, and foreclosure efforts while the case moves forward. For many people, the goal is to obtain a discharge, which permanently wipes out many types of unsecured debts such as credit cards and medical bills, though some obligations like certain taxes, child support, and most student loans generally survive.
Because bankruptcy is a serious step with long‑term credit and financial consequences, most legal and financial experts recommend that individuals carefully compare alternatives such as negotiation, budgeting, or debt management plans before filing.
Moving forward with a clearer picture of how bankruptcy fits into your options can help you act rather than feel overwhelmed.
The Main Chapters of Bankruptcy Law
The U.S. Bankruptcy Code contains several chapters, each designed for different situations and types of filers. Individuals most often use Chapter 7 or Chapter 13, while businesses frequently rely on Chapter 7 or Chapter 11, and there are special chapters for family farmers and fishermen.
Here is an overview of the most commonly used chapters:
- Chapter 7 – liquidation for individuals and businesses
- Chapter 13 – repayment plan for individuals with regular income
- Chapter 11 – reorganization for businesses and some high‑debt individuals
- Chapter 12 – tailored relief for family farmers and fishermen
Each chapter has its own eligibility rules, procedures, and long‑term effects on assets, credit, and future borrowing.
Chapter 7: Liquidation and a Fresh Start
Chapter 7 is often described as liquidation because a trustee may sell non‑exempt property to pay creditors, while qualifying unsecured debts are erased at the end of the case. Individuals, partnerships, and corporations can file under this chapter, but most personal filers must pass a “means test” that looks at income and certain expenses to decide if they qualify.
For many consumers, Chapter 7 works best when:
- Income is relatively low compared with debt
- Most debts are unsecured, like credit cards or medical bills
- There are few non‑exempt assets that could be sold
State and federal exemption rules allow filers to keep certain property, such as a basic car, household goods, and sometimes equity in a home, but the exact protection depends on where they live.
Chapter 7 cases tend to move quickly, often taking only a few months from filing to discharge, which is one reason it remains the most common type of consumer bankruptcy. However, it stays on a credit report for up to 10 years and can affect the ability to obtain loans, housing, or some types of insurance.
Chapter 13: Structured Repayment for Individuals
Chapter 13 is designed for individuals with regular income who want to repay some or all of their debts over time instead of having non‑exempt assets sold. Only individuals and certain sole proprietors can use this chapter; corporations and partnerships generally cannot.
Under Chapter 13, filers propose a repayment plan that usually lasts three to five years, during which they make monthly payments to a trustee who distributes funds to creditors according to court‑approved priorities. This structure can help:
- Catch up on missed mortgage or car payments
- Consolidate unsecured debts into one monthly payment
- Protect property that might be at risk in Chapter 7
There are debt limits for Chapter 13, which are adjusted periodically, and filers must show that they can afford the proposed plan based on their income and reasonable expenses. When the plan is completed, remaining eligible unsecured debts are discharged, giving the filer a path out of long‑term delinquency.
Chapter 13 can stay on a credit report for up to seven years, but some lenders view successful completion of a plan as a sign of responsibility because it shows a steady effort to repay.
Chapter 11: Reorganization for Businesses and High‑Debt Individuals
Chapter 11 is most commonly associated with businesses that want to keep operating while restructuring their finances under court supervision. Corporations, partnerships, and limited liability companies rely on this chapter when they have significant assets, complex debts, and a realistic path to becoming profitable again after restructuring.
In Chapter 11, the filer usually remains in control of day‑to‑day operations as a “debtor in possession” while proposing a plan to adjust debts, renegotiate contracts, and possibly sell some assets. Creditors vote on the plan, and the court must approve it before it becomes binding.
Although Chapter 11 is widely known as a business tool, some individuals with very high debts or complex asset situations also use it, especially when they do not qualify for Chapter 13 because their obligations exceed Chapter 13 debt limits. This chapter is often more expensive and time‑consuming than Chapter 7 or Chapter 13, which is why it is usually reserved for larger or more complex cases.
Chapter 12: Focused Relief for Family Farmers and Fishermen
Chapter 12 is a specialized chapter designed for family farmers and family fishermen whose income and debts come mainly from agricultural or fishing operations. It combines elements of Chapter 13 and Chapter 11, offering a streamlined process for proposing and carrying out a repayment plan tailored to seasonal or fluctuating income.
Eligibility for Chapter 12 depends on meeting specific requirements, including limits on total debt and the percentage of that debt tied to the farming or fishing business. For qualifying families, this chapter can provide a way to reorganize obligations while keeping land, equipment, and operations running.
Trends in Bankruptcy Filings in Recent Years
Recent data show that bankruptcy filings in the United States have been rising after reaching lower levels during the height of the pandemic, when government assistance and temporary protections were widely available. In calendar year 2025, one major data provider reported more than 565,000 total bankruptcy filings, an increase of about 11 percent compared with 2024.
Official court statistics for the 12‑month period ending in late 2025 also show a similar pattern, with total personal and business bankruptcy filings climbing more than 10 percent from the previous year. Consumer cases still make up the vast majority of filings, and within that group, Chapter 7 and Chapter 13 remain the primary paths for individuals seeking relief.
Even with these increases, total annual filings remain below pre‑pandemic levels, reflecting ongoing adjustments to changing economic conditions, interest rates, and household budgets.
How to Decide Which Chapter Fits Your Situation
Choosing a chapter is not just about which one is available; it is about which one matches your income, assets, and long‑term goals. Key questions often include:
- Do you have regular income that could support a structured repayment plan?
- Are you trying to save a home, car, or business that is behind on payments?
- How much of your debt is unsecured versus secured by collateral?
- Do your total debts fall within Chapter 13 limits, or are they higher?
For someone with limited income, high unsecured debt, and few assets, Chapter 7 may offer the most direct path to eliminating obligations. For a homeowner who is behind on a mortgage but wants to keep the property, Chapter 13 can provide a way to catch up over several years.
Owners of struggling businesses that still have a realistic chance to return to profitability often look to Chapter 11 to restructure operations and debt rather than close their doors. Family farmers and fishermen who rely on land and equipment to earn a living may find Chapter 12’s tailored structure better suited to seasonal income and specialized needs.
Because each case is unique, many people seek personalized legal advice before deciding which chapter to pursue so they understand how the filing will affect property, taxes, and future borrowing.
Life After Bankruptcy: Rebuilding and Moving Forward
Completing a bankruptcy case is often the beginning of a new financial chapter, not the end of the story. A filing can remain on a credit report for years, but many people start rebuilding credit sooner than they expect by paying ongoing obligations on time, keeping balances low, and using new credit carefully when it becomes available.
Some lenders and landlords may view a recent bankruptcy as a risk, yet others focus more on current income, stability, and payment history after the filing. Practical steps such as creating a realistic budget, building an emergency fund, and monitoring credit reports can help former filers avoid falling back into unmanageable debt.
Understanding how the system works—and how others have successfully moved forward—can make the process feel less intimidating and more like a structured plan to regain control over your finances.
If you have been through bankruptcy or are considering it now, sharing your experiences and questions can help others feel less alone and more prepared to take their own next steps.