Bankruptcy is the legal remedy available to individuals and businesses that become insolvent and are unable to repay debts. There are three primary types of bankruptcy available to individuals and businesses. Chapter 7 is a liquidation bankruptcy available only to individuals. Chapter 13 is the most common reorganization form of bankruptcy used by individuals.
Chapter 7 Bankruptcy
The Chapter 7 bankruptcy is the most common type of bankruptcy proceeding filed by individuals.
Whereas Chapter 7 focuses on liquidation, the purpose of a Chapter 11 bankruptcy is to reorganize debts so that the filer is able to pay them. Neither creditors nor the bankruptcy trustee can take property from the debtor who has filed for protection under Chapter 11.
Chapter 11 is available for individuals as well, but it is uncommon that individuals enter into Chapter 11 proceedings. Where individuals file under Chapter 11, it generally is because their debts are higher than the limits permitted in Chapter 13.
Chapter 13 bankruptcy
Chapter 13 bankruptcy often is referred to as the wage-earner's bankruptcy, because it requires that the individual filing for bankruptcy under Chapter 13 has a regular, disposable income.
