What Are the 6 Types of Bankruptcies?

Bankruptcy is one of those topics that most people have a vague sense of but don't fully understand until they actually need to.

The reality is that there are six distinct types of bankruptcy under U.S. federal law, each designed for a different borrower or situation, and choosing the wrong one can have serious consequences.

In this post, we'll walk through all six types, who each one is designed for, and what you should know before considering any of them.

What are the 6 types of bankruptcies?

The six types of bankruptcy in the United States are named after the chapters of the U.S. Bankruptcy Code that govern them: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15.

Most individuals will only ever encounter Chapter 7 or Chapter 13, but understanding all six paints a clearer picture of how bankruptcy works across different situations.

Let's jump in.

Chapter 7: Liquidation bankruptcy

Chapter 7 is the most common form of personal bankruptcy, and it's mainly designed for individuals who have limited income and significant unsecured debt.

In a Chapter 7 filing, a court-appointed trustee reviews your assets and liquidates any non-exempt property to pay back creditors.

Exempt assets, be it a primary vehicle up to a certain value, basic household goods, or retirement accounts, are generally protected depending on your state's exemption laws.

Once the process is complete, most remaining unsecured debts, such as credit card balances and medical bills, are discharged, meaning you're no longer legally obligated to pay them.

The entire process typically takes three to six months from filing to discharge, making it the fastest bankruptcy option available to individuals.

This said, not everyone qualifies. To file Chapter 7, you must pass a "means test" that compares your income to the median income in your state. If you earn too much, you may be directed toward Chapter 13 instead.

Chapter 9: Municipality bankruptcy

Chapter 9 is designed exclusively for municipalities, which means it's not available to individuals or private businesses at all.

Cities, counties, school districts, and public utilities can file Chapter 9 when they're unable to meet their debt obligations.

It effectively allows a municipality to restructure its debts with creditors while continuing to operate and deliver public services.

Detroit's 2013 bankruptcy filing is one of the most well-known examples of a Chapter 9 case in recent U.S. history.

Because it's limited to government entities, every individual or business owner reading this post will never file Chapter 9 personally.

Chapter 11: Reorganization bankruptcy for businesses

Chapter 11 is primarily used by businesses that want to restructure their debts and continue operating rather than shut down entirely.

It's effectively a reorganization process where the business proposes a plan to repay creditors over time while maintaining day-to-day operations.

Large corporations going through Chapter 11 often stay open throughout the process, which is why you'll sometimes see a major retailer or airline continue operating even after filing for bankruptcy.

Individuals can technically file Chapter 11, but it's generally only practical for high-income filers with debts that exceed Chapter 13's limits, since the process is expensive and complex.

The costs involved in a Chapter 11 filing, including attorney fees and administrative expenses, can run into the hundreds of thousands of dollars for large cases.

Chapter 12: Family farmer and fisherman bankruptcy

Chapter 12 is a specialized form of bankruptcy designed specifically for family farmers and family fishermen who have regular annual income.

It allows them to propose a three to five year repayment plan to restructure debts tied to their operations while continuing to farm or fish.

Chapter 12 was created because family agricultural and fishing businesses have unique seasonal income patterns and asset structures that don't fit neatly into Chapter 7 or Chapter 13.

Debt limits apply, and filers must derive a majority of their income from farming or fishing to qualify.

It's a niche filing type that most people will never encounter, but it's an important safety net for a specific segment of the population whose livelihood depends on it.

Chapter 13: Reorganization bankruptcy for individuals

Chapter 13 is the second most common form of personal bankruptcy, and it's mainly designed for individuals who have a regular income and want to keep their assets while repaying debts over time.

Rather than liquidating assets like Chapter 7, Chapter 13 allows you to propose a three to five year repayment plan to pay back all or a portion of what you owe.

This is a super important distinction for homeowners, since Chapter 13 can allow you to catch up on missed mortgage payments and potentially save your home from foreclosure, something Chapter 7 generally cannot do.

To qualify, your secured and unsecured debts must fall below certain limits, which are adjusted periodically by federal law.

Chapter 13 stays on your credit report for seven years from the filing date, compared to ten years for Chapter 7, which is one reason some filers prefer it when they have the income to support a repayment plan.

Chapter 15: Cross-border insolvency

Chapter 15 is the most specialized of the six types, and it applies to bankruptcy cases that involve assets or parties in more than one country.

It's designed to coordinate insolvency proceedings between U.S. courts and foreign courts when a debtor has connections to multiple jurisdictions.

Chapter 15 is essentially a framework for international cooperation, not a standalone filing type for most debtors.

It's rarely relevant to individual filers and mainly comes into play for multinational corporations or foreign companies with U.S. assets.

How bankruptcy affects your credit

Filing for bankruptcy has a significant and immediate impact on your credit score, and the effects linger for years after the case is closed.

A Chapter 7 bankruptcy stays on your credit report for ten years from the filing date, while a Chapter 13 filing remains for seven years.

During that time, the bankruptcy notation paints a picture to lenders of significant past financial distress, which generally makes it harder to get approved for credit, housing, or certain types of employment.

This said, bankruptcy is not a permanent condition, and many people begin rebuilding their credit within months of their discharge by establishing new positive payment history.

The single most effective thing you can do after bankruptcy is open a new credit account that reports to all three bureaus and make every payment on time.

Kikoff is a credit-building platform that helps people at all stages of their credit journey add positive payment history to their profile, with no hard credit check required to sign up.

Chapter 7 vs. Chapter 13: Which is more common for individuals?

For most individuals considering personal bankruptcy, the real decision comes down to Chapter 7 versus Chapter 13.

Here's a breakdown of the key differences:

• Chapter 7 is faster (three to six months vs. three to five years)
• Chapter 7 requires passing a means test based on income
• Chapter 13 lets you keep more assets, including a home you're behind on
• Chapter 13 stays on your credit report for seven years vs. ten for Chapter 7
• Chapter 7 discharges most unsecured debt immediately upon completion
• Chapter 13 requires a structured repayment plan for some or all debts

Which one is right for you depends on your income, your assets, and what debts you're trying to address.

Consulting with a bankruptcy attorney before filing is generally a no-brainer, since the filing itself has long-term financial consequences that are difficult to undo.

Conclusion

There are six types of bankruptcy under U.S. federal law, each designed for a specific situation.

Chapter 7 and Chapter 13 are the two types most relevant to individual filers, with the right choice depending on your income, assets, and financial goals.

Regardless of which path someone takes, rebuilding credit after bankruptcy is a process that takes time and consistent positive behavior.

Kikoff makes it easy to start adding positive payment history to your credit profile after a setback, with no hard credit check required.