In the United States, “bankruptcy” is handled under different legal chapters in the Bankruptcy Code. The most common consumer option is Chapter 7, but the phrase “types of bankruptcy” usually refers to several chapters that differ in eligibility rules and how debts are handled.
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Overview: U.S. bankruptcy chapters
In the United States, “bankruptcy” is handled under different legal chapters in the Bankruptcy Code. The most common consumer option is Chapter 7, but the phrase “types of bankruptcy” usually refers to several chapters that differ in eligibility rules and how debts are handled.
Chapter 7 (Liquidation)
Chapter 7 is often called “liquidation.” A court-appointed trustee may sell non-exempt assets and distribute the proceeds to creditors. Many eligible unsecured debts (like credit cards and medical bills) are typically discharged, meaning the debtor is no longer legally required to pay them. Eligibility generally depends on passing a means test (income and household size) and meeting other requirements. Some debts are usually not discharged (for example, certain taxes, student loans in most cases, child support, and certain debts from fraud).
Other common chapters (brief)
Chapter 13 (Reorganization/repayment plan): Debtors repay creditors over 3–5 years under a court-approved plan, often keeping property. Chapter 11 (Reorganization): Common for businesses, but individuals may use it in some cases. Chapter 12 (Family farmers/fishermen): Specialized repayment structure. Chapter 9 (Municipalities): Used by local governments. Chapter 15 (Cross-border): Helps coordinate bankruptcy cases across countries.
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