What Is Bankruptcy

Chapter 7: Liquidation Bankruptcy

Who it’s for: Chapter 7 is mainly for individuals or businesses that don’t have the means to pay off their debts.

How it works: In Chapter 7, a bankruptcy trustee is appointed to sell (liquidate) the debtor’s non-exempt assets to pay creditors. It’s a relatively quick process, often completed within months.

Key benefits: Chapter 7 can eliminate most types of unsecured debt (like credit card debt) and offers a “fresh start.”

Chapter 11: Reorganization Bankruptcy

Who it’s for: Chapter 11 is commonly used by businesses, including corporations, partnerships, and sole proprietorships, although high-debt individuals can also file.

How it works: This chapter allows the business to continue operating while restructuring its debts under a court-approved reorganization plan.

Key benefits: Chapter 11 helps businesses to restructure debts, keep their doors open, and protect jobs.

Chapter 13: Wage Earner’s Plan

Who it’s for: Chapter 13 is intended for individuals with a regular income who can pay back debt over time.

How it works: Debtors propose a repayment plan to make installments to creditors over three to five years.

Key benefits: Chapter 13 allows debtors to avoid foreclosure on their homes and catch up on missed mortgage payments.


Each bankruptcy chapter serves different financial situations and offers unique protections and limitations. Understanding which bankruptcy chapter to file under can be complex, and it is often advisable to consult with a bankruptcy attorney to navigate this significant financial decision.

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