Individuals in the United States have four bankruptcy chapters to choose from: Chapter 7 (liquidation), Chapter 13 (repayment plan), Chapter 11 (reorganization), and Chapter 12 (reserved for family farmers and commercial fishermen). The types of bankruptcy available to individuals differ in who qualifies, how long the case lasts, what property you keep, and how much of your debt gets wiped out. Federal courts handle every bankruptcy case, and the same rules apply nationwide.1United States Courts. About U.S. Bankruptcy Courts Picking the wrong chapter can mean losing property you could have kept or paying far more than you needed to.
Chapter 7: Liquidation
Chapter 7 is the fastest and most common form of individual bankruptcy. A court-appointed trustee collects your property that isn’t protected by exemptions, sells it, and uses the proceeds to pay creditors. In exchange, most of your remaining eligible debts are wiped out, usually within three to four months of filing.2United States Courts. Chapter 7 – Bankruptcy Basics In practice, most Chapter 7 cases are “no-asset” cases where the filer’s property falls entirely within protected categories and creditors receive nothing.
Who Qualifies: The Means Test
Not everyone can file Chapter 7. A screening called the means test works in two stages. First, the court compares your average monthly income over the past six months against the median income for a household your size in your state. If your income falls below that median, you generally qualify without further scrutiny.3United States Department of Justice. Means Testing
If your income exceeds the median, the analysis gets more involved. The court subtracts certain allowed expenses and secured debt payments from your income, then projects what you could pay over five years. When that projected amount exceeds a statutory threshold, the filing is presumed abusive. The debtor can only overcome that presumption by showing special circumstances that justify higher expenses or lower income.2United States Courts. Chapter 7 – Bankruptcy Basics The practical effect: if you earn above your state’s median and have meaningful disposable income, the court will push you toward Chapter 13 instead.
What You Get to Keep
Chapter 7 doesn’t leave you with nothing. Federal exemptions protect specific categories and dollar amounts of property from the trustee’s reach. Under the federal exemptions effective April 1, 2025, the key protections include:4Office of the Law Revision Counsel. 11 USC 522 – Exemptions
- Homestead: up to $31,575 in equity in your primary residence.
- Motor vehicle: up to $5,025 in equity in one vehicle.
- Household goods: up to $800 per item and $16,850 total for furniture, appliances, clothing, and similar belongings.
- Wildcard: $1,675 applied to any property, plus up to $15,800 of any unused portion of the homestead exemption.
- Tools of your trade: up to $3,175.
- Retirement accounts: protected up to $1,711,975 for IRAs; employer-sponsored plans like 401(k)s are fully exempt regardless of balance.
Many states offer their own exemption schemes, and some are significantly more generous than the federal list. A handful of states require you to use their exemptions rather than the federal ones. The homestead exemption is where this matters most: some states protect hundreds of thousands of dollars in home equity, while others protect far less than the federal amount.
Chapter 13: Repayment Plans
Chapter 13 is built for people who have steady income but can’t keep up with their current debt payments. Instead of liquidating property, you propose a repayment plan lasting three to five years. A trustee collects your monthly payments and distributes them to creditors according to the plan.5United States Courts. Chapter 13 – Bankruptcy Basics At the end of the plan, remaining qualifying debts are discharged.
The biggest advantage over Chapter 7 is keeping your property. If you’re behind on your mortgage or car loan, Chapter 13 lets you catch up on missed payments through the plan while continuing to make regular payments going forward. Chapter 7 can’t do that. For people with significant home equity that exceeds the exemption limits, Chapter 13 prevents a trustee from selling the house.
Chapter 13 also discharges a somewhat broader range of debts than Chapter 7. Debts from willful property damage and debts arising from divorce property settlements can be discharged in Chapter 13 but not in Chapter 7.6United States Courts. Discharge in Bankruptcy That broader discharge is one reason some filers choose Chapter 13 even when they could qualify for Chapter 7.
Debt Limits
Chapter 13 has eligibility ceilings. As of the most recent adjustment, your unsecured debts (credit cards, medical bills, personal loans) must be less than $526,700, and your secured debts (mortgages, car loans) must be under $1,580,125.7Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor These figures are adjusted periodically for inflation. If your debts exceed these limits, Chapter 11 is your alternative.
Chapter 11: Individual Reorganization
Chapter 11 is usually associated with corporate restructuring, but individuals can file under it too, and sometimes it’s the only option. When your debts exceed the Chapter 13 limits, Chapter 11 is the remaining path for reorganization. There are no debt ceilings for a standard Chapter 11 case.8United States Courts. Chapter 11 – Bankruptcy Basics
In Chapter 11, you act as a “debtor in possession,” meaning you keep control of your assets and financial affairs while negotiating a reorganization plan with creditors. The plan must be approved through a formal voting process and confirmed by the court.9Office of the Law Revision Counsel. 11 USC Chapter 11 – Reorganization The flexibility is considerable, but so are the costs. Chapter 11 involves extensive disclosure requirements and legal complexity that make attorney fees substantially higher than in other chapters. The court filing fee alone is $1,738.
Subchapter V for Small Business Owners
If you run a small business and your total debts don’t exceed $3,024,725, Subchapter V offers a streamlined version of Chapter 11.10United States Department of Justice. Subchapter V Small Business Reorganizations A trustee is appointed to help negotiate between you and your creditors, but unlike a standard Chapter 11, the trustee doesn’t take control of the business. The process moves faster, costs less, and doesn’t require creditors to vote on the plan. For sole proprietors whose business and personal debts are intertwined, Subchapter V is often the most practical route.
Chapter 12: Family Farmers and Fishermen
Chapter 12 exists because farming and commercial fishing don’t generate predictable monthly paychecks. Income arrives in seasonal bursts tied to harvests or catch cycles, and that pattern doesn’t fit neatly into the rigid monthly payment structure of Chapter 13. Chapter 12 accommodates that reality with flexible payment schedules that can mirror the debtor’s actual income patterns.11United States Courts. Chapter 12 Bankruptcy Basics
To qualify, at least 50% of your gross income from the preceding tax year must come from farming or fishing operations. Total debts cannot exceed $12,562,250 for family farmers or $2,568,000 for commercial fishermen.11United States Courts. Chapter 12 Bankruptcy Basics The plan lets you keep your land, equipment, and livestock while restructuring what you owe over three to five years. Like other dollar thresholds in the Bankruptcy Code, these limits are adjusted periodically for inflation.
Choosing Between the Chapters
The choice usually narrows itself once you work through a few questions in order.
Start with your work. If at least half your income last year came from farming or commercial fishing and you’re within the debt ceilings, Chapter 12 is almost certainly the right fit because it’s the only chapter built around seasonal income.
Next, look at your total debts. If your unsecured debts exceed $526,700 or your secured debts exceed $1,580,125, Chapter 13 is off the table and reorganization has to happen under Chapter 11 (or Subchapter V, if you run a small business and your total debts stay under $3,024,725).
Within the normal consumer range, the question becomes whether you need to keep specific property. If you’re current on your secured debts, your non-exempt assets are modest, and you pass the means test, Chapter 7 is usually faster and cheaper. If you’re behind on a mortgage or car loan you want to keep, or you have home equity above the exemption limits, Chapter 13 protects what Chapter 7 would surrender. And if you earn above your state’s median income and have meaningful disposable income left after allowed expenses, the means test will likely steer you into Chapter 13 regardless of preference.
What Every Chapter Has in Common
The Automatic Stay
The moment you file any bankruptcy petition, a legal shield called the automatic stay kicks in. It immediately halts most collection activity against you. Creditors must stop calling, lawsuits are frozen, wage garnishments pause, and pending foreclosures or repossessions are put on hold.12Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay For many filers, this breathing room is the most immediate and tangible benefit of bankruptcy.
The stay has limits. It doesn’t stop criminal proceedings, and it won’t pause child support or alimony obligations. Ongoing eviction cases that started before your filing may continue depending on the circumstances. The IRS can still audit you, though the stay generally prevents the agency from seizing your property or placing new liens during the case. Creditors who violate the stay can face sanctions, so the protection has real teeth.
Debts That Survive Bankruptcy
Bankruptcy eliminates many debts, but not all of them. The Bankruptcy Code carves out specific categories that survive a discharge regardless of which chapter you file under.6United States Courts. Discharge in Bankruptcy The ones most filers need to worry about include:
- Child support and alimony, which are never dischargeable.
- Most tax debts, including recent income taxes and taxes where the debtor filed a fraudulent return or failed to file at all.
- Government-backed and qualified private student loans, unless you can prove repayment would impose an “undue hardship,” a standard courts have historically interpreted very strictly.
- Money obtained through false pretenses, misrepresentation, or actual fraud.
- Personal injury or death caused by driving under the influence.
- Criminal fines, restitution orders, and most government-imposed penalties.
- Debts you forgot to list in your bankruptcy schedules.
Credit Impact
A bankruptcy filing stays on your credit report for up to 10 years from the filing date, regardless of which chapter you use.13Consumer Financial Protection Bureau. How Long Does a Bankruptcy Appear on Credit Reports? The practical credit damage starts fading well before the record disappears, particularly if you take on small amounts of new credit responsibly after discharge. Most people who complete a Chapter 7 can qualify for a mortgage within two to four years, depending on the loan program.