What Type of Bankruptcy Should I file?

There are two types of bankruptcy, liquidation and reorganization, which are broken down into different Chapters as outlined in the Bankruptcy Code.  While choosing the best chapter for you depends entirely on your personal circumstances, following is an analysis of the available options:

    1. Chapter 7 – Liquidation. A Chapter 7 bankruptcy is used by individuals to get debt free in a straightforward and cost effective manner.  Upon filing, a trustee is appointed to gather the available non-exempt assets, liquidate them, and use the funds to pay the creditors’ claims.  The amount repaid to creditors varies in each case and is dependent upon the availability of non-exempt assets and the amount of claims filed against the bankruptcy estate.

      The goal behind a bankruptcy filing is to give the debtor a “fresh financial start.” Chapter 7 bankruptcy is available to both individuals and business. An individual debtor can receive a discharge of most unpaid debts in Chapter 7. Although a discharge will eliminate the obligation to repay unsecured debts, a discharge will not extinguish a lien on property. You should consult with a qualified attorney to discuss your specific circumstances in detail to discuss issues raised with different types of debt and how they may impact your case.



    1. Chapter 11 – Business Reorganization. Unlike a Chapter 7 where all non-exempt assets are liquidated, in a Chapter 11, a business is given the opportunity to restructure its debt by using its available assets in an orderly fashion.  A Chapter 11 bankruptcy can assist in reorganizing secured debt, vendor debt, and addressing federal or state tax obligations.  A Chapter 11 offers an extended time to repay the company’s obligations if a feasible Plan of Reorganization can be approved by the court.   As an ongoing business typically has a much higher value than if its assets were liquidated, it may be more economically efficient to reorganize than to liquidate. Cooperation and coordination among a variety of players with potentially competing interests is a must for a successful reorganization to occur.  You should obtain a qualified professional to assist you in this type of proceeding since every step of the Chapter 11 proceeding is critical to its measured success.



  1. Chapter 12 – Adjustment of Debts of a Family Farmer or Rancher. This Chapter of the Bankruptcy Code is used to address agricultural bankruptcy needs. It specifically is designed to meet the needs of financially distressed family farmers and ranchers to keep their farms and ranching enterprises and is intended to allow a family farmer or a family fisherman with regular annual income to continue farming and restructure debt with court protection. For those who qualify, a Chapter 12 is designed to eliminate many of the barriers to restructuring that are required in a Chapter 11, which can reduce the time and expense of obtaining approval of a reorganization plan.  Similar in nature to a Chapter 11 proceeding, you should seek out a qualified attorney and preferably one with a working knowledge of the nuances of the agricultural economy.
  1. Chapter 13 – Personal Reorganization. Chapter 13 is the bankruptcy provision available to those who cannot or do not want to file a Chapter 7 yet still need relief from certain debt obligations.  This Chapter is often used by those debtors who need time to repay arrearages on homes or vehicles, who have too much income to qualify for a Chapter 7, or who need time to repay non-dischargeable debts such as taxes.  Although it is often referred to as the “wage earner” bankruptcy, it is also available to small unincorporated businesses owned and operated by individuals.  The goal of a Chapter 13 is to enable a debtor to use his or her income to propose and carry out a repayment plan under which creditors are paid over an extended period of time under court supervision and protection. It is possible that you could have a five year period to adjust your debts in this way while creditors are prohibited from starting or continuing collection efforts.  Any individual is eligible for Chapter 13 relief as long as the individual’s unsecured debts and secured debts are less than certain amounts.  As with all bankruptcy options, you should contact a qualified attorney to determine what chapter best suits your needs and current circumstances.

If you would like more information on Bankruptcy and what your options may be, please contact us here at Waldron and Schneider. You may also view all of our attorneys and their areas of expertise here: Attorney Profiles.

The legal information in this blog entry is not intended to be a substitute for seeking personalized legal advice from an attorney licensed to practice in your jurisdiction. Further, nothing contained in this article is intended to create an attorney-client relationship with any reader. This article and website are made available by Waldron & Schneider for educational purposes only and to give basic information and a general understanding of the law, not to provide specific legal advice. By using this website you understand that there is no attorney client relationship between you and Waldron & Schneider. The article and website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. For more information or questions you can contact us and one of our attorneys will be in touch soon.

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