Different Types of Chapters of Bankruptcy in a Nutshell

Chapter 7. Sometimes called liquidation or straight bankruptcy. A trustee is appointed to liquidate or sell all non-exempt assets for the benefit of the creditors. The debtor receives a discharge or forgiveness of all dischargeable debts. Numerous debts are non-dischargeable in bankruptcy. However, most credit card obligations and general unsecured debts are dischargeable. The vast majority of Chapter 7 cases are so-called "no asset" cases meaning that the debtors keep all of their property and the creditors receive nothing.

Chapter 11. Business Reorganization. Chapter 11 is used by both individuals and businesses, but mostly by businesses to stay creditors' actions against them while they reorganize their debts. A Chapter 11 Plan of Reorganization is proposed by the debtor, and sometimes creditors, which must be approved by the Bankruptcy Court. The plan will govern the repayment of debt. Creditors often times vote on the proposed Plan of Reorganization. General unsecured creditors may or may not need to be paid in full in the Plan of Reorganization.

Chapter 12. This is for Family Farmers and is used exclusively by farmers to reorganize their debt.

Chapter 13. This was once called the Wage Earners Plan and is used by individuals only (not corporations). A sole proprietor or unincorporated business owner may also use Chapter 13 to reorganize their debts. Chapter 13 is often used to save property that is in foreclosure or would be lost to the Chapter 7 Trustee in liquidation. Most actions by creditors are stayed while the debtor is in Chapter 13. The debtor alone proposes a plan of reorganization to which creditors may object but they can not vote on. A Chapter 13 plan typically lasts between three and five years and pays secured and priority creditors in full. Unsecured creditors may or may not need to be paid in full depending on the facts of the case.