Which Type of Bankruptcy Is Best for My Situation?

There are four different types of bankruptcy proceedings that apply to most business and individual situations in the United States (a fifth, Chapter 9, is used by towns or municipalities that cannot

pay their debts, and a sixth, Chapter 15, addresses ancillary and other cross-border cases which are beyond the scope of this article). The concept of bankruptcy is the same no matter what the context: a person or business is no longer solvent and cannot pay back creditors to their satisfaction. To maximize the ability of the debtor to honor obligations and to lessen the damage to the creditor, there are different kinds of bankruptcies. These are outlined below:

Chapter 7 (liquidation) is often used as a last resort for a business or individual who has stretched credit to the absolute limit and has nowhere else to turn. Under Chapter 7, debtors give up assets and property. The property is sold, with proceeds used to pay the creditors. Generally, the debts are discharged (meaning eliminated) about three months after the filing. Debts that are not eligible to be discharged include child support payments, some taxes, and student loans. Car loans, house mortgages, and other secured debts are also not discharged. Credit card debt is dischargeable. The 2005 Bankruptcy Reform has made it more difficult to qualify for Chapter 7 bankruptcy, because debtors are subject to a means test, and if their income is greater than limits set by the government, they must file under Chapter 13.