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.

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: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15.

Let's jump in.

Chapter 7: Liquidation bankruptcy

Chapter 7 is the most common form of personal bankruptcy, 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. Once the process is complete, most remaining unsecured debts are discharged. The entire process typically takes three to six months from filing to discharge.

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 and is not available to individuals or private businesses at all.

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.

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.

Chapter 13: Reorganization bankruptcy for individuals

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

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.

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 applies to bankruptcy cases that involve assets or parties in more than one country.

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.

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.

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
• A subprime credit score after bankruptcy is common and can recover with consistent positive activity

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.

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.