Types of Bankruptcy: Chapter 7, 11 and 13 Explained

There are six types of bankruptcy under U.S. federal law, each named after a chapter of the U.S. Bankruptcy Code.

For most individuals, the relevant options are Chapter 7 — which discharges most eligible debt quickly — and Chapter 13, which restructures debt into a repayment plan. Chapter 11 applies primarily to businesses but is also available to individuals with larger debts. Chapters 9, 12 and 15 cover municipalities, family farmers and fishermen, and international cases respectively.

Understanding which type applies to your situation is the first step toward figuring out whether bankruptcy makes sense for you.

Key Takeaways

• Six types of bankruptcy exist under U.S. law. They're named after chapters of the Bankruptcy Code and serve different filers — individuals, businesses, municipalities and more.

• Chapter 7 and Chapter 13 are the most common for individuals. Chapter 7 discharges most eligible debts within three to six months, while Chapter 13 restructures debt into a three- to five-year repayment plan.

• Chapter 11 is primarily for businesses. It allows reorganization while continuing operations, though individuals with very large debts can also use it.

• Subchapter V is a streamlined Chapter 11 option. Created in 2019, it makes reorganization more accessible and affordable for small businesses and qualifying individuals.

• Not every chapter is available to everyone. Eligibility depends on who you are, how much you owe and the nature of your debt — some chapters are restricted to specific filer types.

Summary generated by AI, verified by MoneyLion editors

What Are the Types of Bankruptcy?

Bankruptcy in the United States is governed by Title 11 of the U.S. Code — commonly called the Bankruptcy Code — and administered through federal bankruptcy courts. The code is divided into numbered sections called "chapters," and each chapter represents a distinct type of bankruptcy proceeding with its own rules, eligibility requirements and purpose.

The six operative chapters are:

• Chapter 7: Liquidation, for individuals and businesses.

• Chapter 9: Municipality reorganization.

• Chapter 11: Business reorganization, also available to some individuals.

• Chapter 12: Family farmer and family fisherman reorganization.

• Chapter 13: Individual debt repayment plan.

• Chapter 15: Cross-border and international insolvency cases.

For most people reading this, Chapter 7 and Chapter 13 are the most relevant. But knowing how all six work — and who each one is designed for — gives you a clearer picture of the full landscape.

Quick Reference: All Six Types of Bankruptcy

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Chapter 7 Bankruptcy: Liquidation

Chapter 7 is the most common type of bankruptcy for individuals and the fastest path to discharging eligible debt. According to the Administrative Office of the U.S. Courts, approximately 59% of consumer bankruptcy cases closed in 2024 were filed under Chapter 7.

How Chapter 7 Works

When you file Chapter 7, a court-appointed bankruptcy trustee reviews your financial situation and may sell any non-exempt assets to pay creditors. After that process is complete, most remaining eligible unsecured debts — credit cards, medical bills, personal loans — are discharged, and you're no longer legally obligated to repay them.

In practice, most Chapter 7 cases are "no-asset" cases, meaning the filer's property falls entirely within protected exemption categories and creditors receive nothing from an asset sale. What counts as exempt varies by state but commonly includes a portion of home equity, a vehicle up to a certain value, retirement accounts and basic household goods.

Chapter 7 Eligibility: The Means Test

Not everyone qualifies for Chapter 7. You must pass the means test, which compares your average monthly income over the prior six months to the median income for a household your size in your state. If your income falls below the median, you generally qualify. If it's above, a more detailed review of your allowable expenses and disposable income determines whether you can proceed.

What Chapter 7 Doesn't Cover

Chapter 7 discharges most unsecured debts, but not all. Child support, alimony, most student loans, recent income taxes, court fines and debts from fraud or intentional wrongdoing typically survive a Chapter 7 filing.

Chapter 7 at a Glance

• Best for: People with limited income, few non-exempt assets and primarily unsecured debt like credit cards and medical bills.

• Timeline: Three to six months from filing to discharge.

• Credit report impact: Stays on your report for up to 10 years from the filing date.

Chapter 13 Bankruptcy: The Repayment Plan

Chapter 13 — sometimes called the "wage earner's plan" — is the second most common type of consumer bankruptcy. About 41% of consumer cases closed in 2024 were filed under Chapter 13, according to the U.S. Courts BAPCPA Report.

How Chapter 13 Works

Instead of discharging debts immediately, Chapter 13 lets you propose a three- to five-year repayment plan to pay back some or all of what you owe. Monthly payments go to a court-appointed trustee, who distributes the funds to creditors. Once you complete the plan, remaining eligible debts are discharged.

The key advantage: you keep your assets. Chapter 13 is particularly valuable for homeowners behind on mortgage payments, because it allows you to catch up on arrears through the repayment plan while stopping foreclosure.

Chapter 13 Eligibility

To file Chapter 13, you need a regular source of income. Your secured and unsecured debts must also fall within limits set by the Bankruptcy Code. Corporations can't file under Chapter 13 — it's available only to individuals.

Chapter 13 at a Glance

• Best for: People with regular income who want to keep assets, stop foreclosure or catch up on secured debt like a mortgage or car loan.

• Timeline: Three to five years.

• Credit report impact: Typically stays on your report for seven years from the filing date.

Chapter 11 Bankruptcy: Business Reorganization

Chapter 11 is the reorganization chapter. It's designed primarily for businesses — corporations, partnerships and LLCs — that want to restructure their debts and continue operating rather than shut down entirely. It's also available to individuals whose debts exceed the limits for Chapter 13.

How Chapter 11 Works

In a standard Chapter 11 case, the business continues operating as a "debtor in possession" — meaning it retains control of its assets and day-to-day operations while developing a reorganization plan under court supervision. The plan must be voted on by creditors and approved by the court before it takes effect.

Chapter 11 is the most complex and expensive type of bankruptcy. Legal fees, court costs and ongoing reporting requirements make it impractical for most individuals and small businesses — which is why Subchapter V was created.

Subchapter V: Streamlined Chapter 11 for Small Businesses

In 2019, Congress passed the Small Business Reorganization Act (SBRA), which created Subchapter V of Chapter 11. Subchapter V makes the reorganization process faster, less expensive and more accessible for qualifying small businesses and individuals.

Key differences from standard Chapter 11 include shorter plan deadlines, no required disclosure statement, no creditor voting committee and a court-appointed trustee who actively helps develop a reorganization plan. A temporary pandemic-era law raised the Subchapter V debt limit to $7.5 million, but that increase expired in June 2024. As of April 1, 2025, the debt limit to qualify is $3,424,000 in total secured and unsecured debt, adjusted for inflation.

Chapter 11 at a Glance

• Best for: Businesses needing to restructure and continue operations; high-debt individuals who don't qualify for Chapter 13.

• Timeline: Six months to several years, depending on complexity.

• Subchapter V: Available to small businesses and individuals with debts under $3,424,000, as of April 2025.

Chapter 12 Bankruptcy: Family Farmers and Fishermen

Chapter 12 is a specialized chapter designed exclusively for family farmers and family fishermen with regular annual income. It was created because the debt structures facing agricultural and fishing operations don't fit neatly into Chapter 13 — which was built for wage earners with smaller debts — or Chapter 11, which is too complex and expensive for most family farms.

How Chapter 12 Works

Chapter 12 works similarly to Chapter 13: the debtor proposes a three- to five-year repayment plan, makes payments to a trustee and continues operating the farm or fishing business throughout the process. Upon completing the plan, remaining eligible debts are discharged.

As of the April 2025 adjustment, the maximum debt limit for a family farmer under Chapter 12 is $12,562,250, and for a family fisherman it's $2,568,000. These limits are adjusted for inflation every three years.

Chapter 12 at a Glance

• Best for: Family farmers and family fishermen with regular income and qualifying debt levels.

• Timeline: Three to five years.

• Key benefit: Debtor keeps the farming or fishing operation running while repaying debt.

Chapter 9 Bankruptcy: Municipalities

Chapter 9 is available exclusively to municipalities — cities, towns, counties, school districts, taxing districts and similar government entities. It's the rarest type of bankruptcy, reserved for situations where a local government can no longer meet its financial obligations.

Chapter 9 works similarly to Chapter 11 in that it allows debt restructuring rather than liquidation. But unlike private bankruptcies, the court's authority is limited — a city can't be "sold off." The municipality retains control of its operations and proposes a debt adjustment plan for court approval.

Notable Chapter 9 cases include Detroit, Michigan, which filed in 2013 with roughly $18 billion in liabilities in one of the largest municipal bankruptcies in U.S. history.

Chapter 9 at a Glance

• Best for: Municipalities — not available to individuals or businesses.

• Timeline: Varies; major cases can take years.

• Key feature: Allows debt restructuring without liquidation or loss of government control.

Chapter 15 Bankruptcy: Cross-Border Cases

Chapter 15 handles situations where a debtor has assets, creditors or operations in both the United States and another country. It provides a legal framework for U.S. courts to coordinate with foreign insolvency proceedings and give foreign representatives access to U.S. courts when needed.

Chapter 15 isn't a tool for individuals dealing with personal debt — it's a mechanism for managing complex international business insolvencies involving multiple legal jurisdictions.

Chapter 15 at a Glance

• Best for: International businesses or debtors with cross-border financial entanglements.

• Timeline: Varies.

• Key feature: Enables cooperation between U.S. and foreign courts in insolvency proceedings.

Which Type of Bankruptcy Is Right for You?

For most individuals, the choice comes down to Chapter 7 or Chapter 13. Here's a practical way to think about it.

Consider Chapter 7 if:

• Your income is below or near your state's median income.

• Most of your debt is unsecured — credit cards, medical bills, personal loans.

• You don't have significant non-exempt assets you need to protect.

• You want the fastest possible resolution.

Consider Chapter 13 if:

• You have a regular income and want to keep assets, particularly a home.

• You're behind on mortgage payments and want to stop foreclosure.

• You have secured debts — like a car loan — you want to catch up on.

• Your income is too high to qualify for Chapter 7.

Consider Chapter 11 or Subchapter V if:

• You own a business that needs to restructure while continuing to operate.

• Your personal debts are too large for Chapter 13 limits.

• You're a small business owner with debts under $3,424,000 who needs a more accessible reorganization path.

Before filing any type of bankruptcy, speaking with a nonprofit credit counselor or bankruptcy attorney can help you evaluate whether filing makes sense and which chapter fits your situation. The CFPB offers resources for finding approved nonprofit credit counseling agencies.

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Bottom Line

There are six types of bankruptcy under U.S. law, each designed for a different type of filer and financial situation. For individuals, Chapter 7 and Chapter 13 cover the vast majority of cases — one discharges most eligible debt quickly, the other restructures it over time. Chapter 11 serves businesses and high-debt individuals, while Chapters 9, 12 and 15 address municipalities, family farms and fishermen, and international cases respectively.

The right type depends on your income, the nature of your debt, what assets you need to protect and how quickly you need relief. Understanding the differences between them is the starting point for any informed decision about whether bankruptcy is the right path forward.

Key Terms

• Bankruptcy Code: The federal law — Title 11 of the United States Code — that governs all bankruptcy cases in the U.S.

• Chapter 7: Liquidation bankruptcy that discharges most eligible unsecured debts. Requires passing a means test based on income. Stays on your credit report for up to 10 years.

• Chapter 11: Reorganization bankruptcy primarily for businesses. Allows continued operations while restructuring debt under a court-approved plan.

• Chapter 12: Bankruptcy for family farmers and fishermen with regular annual income. Structured similarly to Chapter 13, with higher debt limits tailored to agricultural and fishing operations.

• Chapter 13: Repayment plan bankruptcy for individuals with regular income. Allows filers to keep assets while repaying debt over three to five years. Typically stays on your credit report for seven years.

• Subchapter V: A streamlined, lower-cost version of Chapter 11 created in 2019 for small businesses and qualifying individuals with debts under $3,424,000, as of April 2025.

• Means test: An income-based eligibility calculation that determines whether a person qualifies to file Chapter 7 bankruptcy.

• Discharge: The legal elimination of a debt through the bankruptcy process, releasing the borrower from the obligation to repay it.

• Automatic stay: A court order triggered automatically when a bankruptcy petition is filed that halts most collection actions against the debtor.

• Debtor in possession: A Chapter 11 filer who retains control of their assets and business operations during the reorganization process.

Summary generated by AI, verified by MoneyLion editors

Sources

• U.S. Courts — Chapter 7 Bankruptcy Basics

• U.S. Courts — Chapter 11 Bankruptcy Basics

• U.S. Courts — Chapter 12 Bankruptcy Basics

• U.S. Courts — Chapter 13 Bankruptcy Basics

• U.S. DOJ, U.S. Trustee Program — Subchapter V

• IRS — Other Types of Bankruptcy: Chapters 9, 12 and 15

• U.S. Courts — BAPCPA Report 2024

FAQ

Here are quick answers to common questions about the types of bankruptcy.

What is the most common type of bankruptcy?

Chapter 7 is the most common type for individuals. According to the U.S. Courts, approximately 59% of consumer bankruptcy cases closed in 2024 were filed under Chapter 7. It's the fastest option — most cases resolve within three to six months — and it discharges most eligible unsecured debts like credit card balances and medical bills without a repayment plan.

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 eliminates most eligible unsecured debts quickly — usually within three to six months — but you may have to give up certain non-exempt assets, and it requires passing a means test. Chapter 13 takes three to five years and requires regular income, but it lets you keep your assets and catch up on debts like missed mortgage payments through a court-approved plan. Chapter 7 can stay on your credit report for 10 years; Chapter 13 typically for seven.

Can an individual file Chapter 11 bankruptcy?

Yes. While Chapter 11 is primarily used by businesses, individuals can file under it too — particularly those whose debts exceed the limits allowed for Chapter 13. Chapter 11 is more expensive and complex than the other individual options, but Subchapter V, a streamlined version created in 2019, makes it more accessible for small business owners and qualifying individuals with debts under $3,424,000, as of April 2025.

What type of bankruptcy lets you keep your house?

Chapter 13 is generally the best option if keeping your home is a priority. It allows you to stop foreclosure and catch up on missed mortgage payments through the repayment plan over three to five years. Chapter 7 may temporarily pause foreclosure through the automatic stay, but it doesn't provide a way to catch up on arrears, so it typically doesn't offer the same long-term protection for homeowners who are behind.

Which type of bankruptcy is best for getting rid of credit card debt?

Chapter 7 is generally the most effective option for eliminating credit card debt, since credit card balances are unsecured debts that can typically be discharged. If you qualify — which requires passing the means test — most or all of your credit card debt may be eliminated within a few months of filing. Chapter 13 can also address credit card debt, but you'll repay at least a portion of it over three to five years.