Bankruptcy Breakdown: Which Chapter 7, 11, 12, or 13 is Right for You?

Bankruptcy is a legal process that gives relief for individuals or businesses facing overwhelming debt that they can no longer repay. Bankruptcy may seem like the last option, but it can help you get back on your feet financially. Different parts of bankruptcy offer different types of help, depending on the type of debt, the amount of income, and the financial goals of the debtor. It’s important to know these differences in order to pick a plan that works for your specific situation.

Chapter 7 – Straightforward Liquidation

Chapter 7 bankruptcy is the most common type of bankruptcy. People with low incomes and too much unprotected debt, like credit card or medical bills, often file for this type of bankruptcy. In a Chapter 7 case, a trustee may sell any non-exempt items to pay off your debts. However, many people who file, keep most or all of their property because of state or federal deductions.

• Quick settlement, usually in a few months.
• Gets rid of most unsecured bills.
• You have to pass a “means test” based on your income.

It’s great for people who don’t have much or any extra money and can’t see a way to pay back their debts.

Chapter 13 – Structured Repayment for Individuals

Chapter 13 is for people who have a steady income and want to pay back some or all of their bills over three to five years through a court-approved plan. People who want to keep their homes from going into foreclosure often use this chapter because it lets them make up mortgage payments they missed.

• It allows to combine debts into one monthly payment.
• Helps protect valuable assets like a home or car.
• Can include provisions like stripping a second mortgage if the home’s value has drops.

Chapter 11 – Reorganization for Businesses and High-Income Debtorse

Though originally intended for businesses, Chapter 11 can also be used by individuals with debt levels too high for Chapter 13. This chapter gives debtors a thorough reorganization plan that lets them restructure their debts while keeping their businesses running.

• Hard to use and usually more expensive.
• Gives options for how to pay back the loan.
• Used by businesses, partnerships, or people with a lot of debt.

Chapter 12 – Relief for Family Farmers and Fishermen

Chapter 12 was made just for family farms and commercial fishing businesses. It works like Chapter 13 but gives you more freedom to deal with seasonal income and farming-specific obligations.

• For individuals in agriculture or fishing, the process is simplified.
• Allows for restructured payments depending on uneven income sources.
• Provides security that are specific to these fields.

Lesser-Known Bankruptcy Chapters

In addition to Chapters 7, 11, 12, and 13, the U.S. Bankruptcy Code includes several other, less commonly used chapters:

• Chapter 9: This chapter is designed for municipalities—cities, towns, counties, and school districts—allowing them to reorganize debts without dissolving the entity.
• Chapter 15: This chapter sets up a way for U.S. courts and foreign organizations involved in cross-border insolvency to work together on international bankruptcy cases
• (Note: Chapter 10, once used for corporate reorganization, has been repealed and is no longer active.)

These chapters aren’t useful for most people or normal business processes, but they’re very helpful for certain groups that are having specific financial problems.

Choosing the Right Chapter

The right chapter of bankruptcy relies on your income, the amount and type of debt you have, whether you own property or a business, and your long-term financial goals. Chapter 7 may be the right choice for people who want to get rid of their debt quickly. Chapter 13 is likely a better choice if you need to protect your assets and make a plan for paying back your debts. Chapter 11 might help people who own businesses or have a lot of different types of debt, while Chapter 12 is better for family farms and fishermen.

Before you file, you need to know the differences between the chapters. Each one has different perks, timelines, and effects. Carefully looking at your financial situation and exploring all of your choices can help you find the best and most efficient way to get back on track.

Let our experienced Florida bankruptcy attorneys guide you toward the right decision. At SunCoast Law, we’ll review your unique situation and walk you through Chapters 7, 11, 12, or 13 — all at no cost during your initial consultation.