The federal Bankruptcy Code is organized into six main chapters, and the right one depends on who you are and what you owe. Here are the bankruptcy chapters explained in plain terms: Chapter 7 wipes out qualifying debts by liquidating non-exempt property, Chapter 13 restructures an individual’s debts into a three-to-five-year repayment plan, Chapter 11 lets businesses reorganize while continuing to operate, Chapter 12 is built for family farmers and fishermen with seasonal income, Chapter 9 is reserved for municipalities, and Chapter 15 coordinates cases that cross national borders.1United States Department of Justice. Overview Of Bankruptcy Chapters Picking the wrong one can mean losing property you could have kept, paying more than you had to, or having the case thrown out.
Chapter 7: Liquidation
Chapter 7 is the most common filing for individuals who want to eliminate qualifying debt quickly. A court-appointed trustee gathers and sells your non-exempt property and distributes the proceeds to creditors.2United States Courts. Chapter 7 – Bankruptcy Basics Property shielded by federal or state exemptions stays with you. Homestead exemptions protect a portion of equity in a primary residence, and the amount shielded varies widely by state. When the trustee finishes, the court issues a discharge order permanently barring creditors from collecting the included debts. Most Chapter 7 cases close in roughly four to six months.
Who Qualifies: The Means Test
Not everyone can file under Chapter 7. If your current monthly income is above your state’s median, the Code requires you to pass a means test that compares your income against allowed expenses. Failing it creates a presumption that the filing is abusive and can lead to dismissal or conversion to Chapter 13.2United States Courts. Chapter 7 – Bankruptcy Basics Filers whose income is below the median skip the detailed calculation but still submit the income forms. Providing false information on any bankruptcy filing can mean denial of the discharge and criminal penalties of up to five years in prison.3Office of the Law Revision Counsel. 11 U.S.C. 109 – Who May Be a Debtor
Keeping Financed Property: Reaffirmation
If you want to keep a financed car or similar secured property through a Chapter 7 case, you may need to sign a reaffirmation agreement with the lender. This voluntary contract keeps you personally liable for the debt as though the bankruptcy never happened; in return, the lender agrees not to repossess as long as you stay current. If you later default, the lender can repossess and sue you for any remaining balance. You can cancel the agreement by notifying the creditor in writing before the discharge order or within 60 days after the agreement is filed with the court, whichever comes later.4Office of the Law Revision Counsel. 11 U.S.C. 524 – Effect of Discharge
Chapter 13: Individual Debt Repayment
Chapter 13 lets individuals with regular income restructure their debts into a court-supervised repayment plan lasting three to five years. Instead of selling property, you send a portion of monthly income to a trustee, who pays creditors according to a priority ranking set by the Code.5United States Courts. Chapter 13 – Bankruptcy Basics Secured debts like mortgage arrears often get priority, which is how filers keep a home and cure past-due amounts over time. Remaining eligible unsecured balances are discharged at the end of the plan.
You must file a proposed repayment plan within 14 days of the petition.6Legal Information Institute. Rule 3015 – Time to File a Plan A judge then holds a confirmation hearing to make sure unsecured creditors receive at least as much as they would in a Chapter 7 liquidation. Below-median income means a three-year minimum plan; above-median income requires five years.
Debt Limits
Chapter 13 has strict eligibility caps. A temporary law had raised the limit to $2,750,000 in combined debt, but that provision expired in June 2024 without renewal. The current threshold is a two-part test: unsecured debts must be less than $526,700 and secured debts must be less than $1,580,125.5United States Courts. Chapter 13 – Bankruptcy Basics Debtors over those limits typically look at Chapter 11 instead.
Lien Stripping
One powerful tool available only in Chapter 13 is lien stripping. If your home is worth less than what you owe on the first mortgage, a junior lien such as a second mortgage or home equity line has no real collateral behind it. The court can reclassify that junior lien as unsecured debt and remove the lien from the property. The reclassified balance is then paid at whatever percentage your plan allows for unsecured creditors, and any remainder is wiped out when you complete the plan. Chapter 7 does not offer this.
Chapter 11: Business Reorganization
Chapter 11 is primarily used by businesses that want to restructure debts while continuing to operate. The business usually stays in control as a “debtor in possession,” taking on the duties a trustee would otherwise have: managing assets honestly, keeping accurate records, and filing reports with the U.S. Trustee’s office.7Office of the Law Revision Counsel. 11 U.S.C. 1129 – Confirmation of Plan The company can renegotiate contracts and leases while working toward a reorganization plan that creditors will accept. Creditors are grouped into classes based on the nature of their claims, and each class votes on the plan. Failing to get any plan confirmed can lead to conversion to Chapter 7 or outright dismissal.
Subchapter V for Small Businesses
Subchapter V is a streamlined version of Chapter 11 created for small businesses. It eliminates the need for a creditors’ committee, reduces paperwork, and appoints a standing trustee to help negotiate the plan. A temporary law had raised the debt ceiling for Subchapter V eligibility to $7.5 million, but that provision also expired in June 2024, and the limit reverted to a lower, inflation-adjusted threshold.8United States Department of Justice. Subchapter V Only the debtor can propose a plan, and confirmation does not require creditor voting if the plan meets certain fairness requirements. For a small business owner, this track is typically faster and far less expensive than a full Chapter 11.
Chapter 12: Family Farmers and Fishermen
Chapter 12 is tailored to family farmers and commercial fishermen whose income is seasonal and unpredictable. A family farmer must earn more than 50 percent of gross income from farming, and total debts cannot exceed $12,562,250. A family fisherman must earn more than 50 percent from fishing, with total debts capped at $2,568,000.9United States Courts. Chapter 12 – Bankruptcy Basics There is also a debt-composition requirement: at least 50 percent of a farmer’s fixed debts and 80 percent of a fisherman’s fixed debts must come from the farming or fishing operation itself.
Debtors propose a three-to-five-year repayment plan, and payments can be structured around harvest seasons or fishing cycles rather than fixed monthly amounts. That flexibility is the point. A dairy farmer whose income spikes in spring and fall would struggle with level monthly payments under Chapter 13.
Chapter 9: Municipal Bankruptcy
Chapter 9 applies exclusively to municipalities, a term that covers cities, counties, towns, school districts, taxing districts, and public utilities. Individuals and private businesses cannot use it. A municipality cannot be liquidated the way a business can, and the court’s power over a government debtor is deliberately limited to protect local sovereignty.10United States Courts. Chapter 9 – Bankruptcy Basics Eligibility is tightly controlled: the municipality must be specifically authorized by state law to file, must be insolvent, and must have either negotiated in good faith with creditors or shown that negotiation is impracticable.3Office of the Law Revision Counsel. 11 U.S.C. 109 – Who May Be a Debtor Only the municipality itself can propose a plan of adjustment. Detroit’s 2013 filing is the largest Chapter 9 case in U.S. history.
Chapter 15: Cross-Border Cases
Chapter 15 handles bankruptcy cases that span multiple countries, typically when a foreign company has assets or creditors in the United States. It is based on the United Nations Model Law on Cross-Border Insolvency and is designed to promote cooperation between U.S. courts and foreign courts rather than start a separate U.S. bankruptcy from scratch.11United States Courts. Chapter 15 – Bankruptcy Basics A foreign representative files a petition for recognition in a U.S. bankruptcy court, which then decides whether the foreign proceeding qualifies as a “foreign main proceeding” (where the debtor’s center of main interests is located) or a “foreign non-main proceeding.” That classification controls the scope of relief, including whether the automatic stay applies to U.S. assets.12Office of the Law Revision Counsel. 11 U.S. Code Chapter 15 – Ancillary and Other Cross-Border Cases
What Every Chapter Has in Common
The Automatic Stay
Filing a petition under any chapter triggers an automatic stay, an immediate court-ordered freeze on almost all collection activity against the debtor. Creditors must stop lawsuits, wage garnishments, foreclosure proceedings, repossession attempts, and collection calls.13Office of the Law Revision Counsel. 11 U.S.C. 362 – Automatic Stay The stay takes effect the moment the petition is filed, not when the creditor finds out.
There are important exceptions. Criminal proceedings continue. Government agencies can keep enforcing police and regulatory powers. Tax audits and assessments are not paused. Child support and alimony collection are largely exempt from the stay. Repeat filers face limits too: if you had a bankruptcy case dismissed within the past year, the stay in your new case expires after 30 days unless a judge extends it, and two or more dismissals in the past year mean the stay does not take effect at all unless you convince the court to impose it.
Required Counseling and Education
Before filing Chapter 7 or Chapter 13, you must complete a credit counseling session with a nonprofit agency approved by the U.S. Trustee Program. The session must happen within 180 days before the filing date, and the certificate goes in with your petition. Without it, the court will dismiss the case.3Office of the Law Revision Counsel. 11 U.S.C. 109 – Who May Be a Debtor After filing, a separate debtor education course on personal financial management is required before the court will issue a discharge. The two courses cannot be taken at the same time, and only providers approved by the U.S. Trustee Program (or the Bankruptcy Administrator in Alabama and North Carolina) can issue valid certificates.14United States Courts. Credit Counseling and Debtor Education Courses Skipping the post-filing course is one of the most common reasons people who finish every other step still fail to receive a discharge.
Debts That Survive Every Chapter
Bankruptcy does not erase all debts. Certain obligations survive regardless of the chapter you file:15Office of the Law Revision Counsel. 11 U.S.C. 523 – Exceptions to Discharge
- Child support and alimony.
- Most tax debts. Older income tax debts can sometimes be discharged, but only if the return was due more than three years ago, was filed more than two years ago, and the tax was assessed more than 240 days before the petition. Trust fund taxes like payroll withholding are generally non-dischargeable.
- Student loans, unless you prove that repayment would impose an “undue hardship,” a standard courts have historically interpreted strictly.
- Debts obtained through false pretenses, false financial statements, or actual fraud.
- Debts for death or personal injury caused by operating a vehicle while intoxicated.
- Criminal fines and most government-imposed penalties.
- Debts you forget to list, if that creditor had no actual knowledge of the case.
Filing Fees
Every petition requires a filing fee paid to the court:
- Chapter 7: $338 (filing fee, administrative fee, and trustee surcharge combined)
- Chapter 13: $313
- Chapter 12: $278
- Chapter 11: $1,738, plus quarterly fees based on disbursements during the case
- Chapter 9: $1,738
- Chapter 15: $1,738
Individuals filing Chapter 7 or Chapter 13 who cannot pay upfront may apply to pay in installments. Attorney fees are separate and vary significantly by location and case complexity. In Chapter 7 cases, they commonly range from several hundred dollars to $2,500 or more depending on the market.