Bankruptcy chapters available to consumers: 7, 11, 12 and 13

What are the bankruptcy chapters available to consumers?

The Bankruptcy Code is divided into chapters, and the number describes the kind of case, not how bad the situation is. Before an individual whose debts are primarily consumer debts files, the clerk must give written notice describing Chapters 7, 11, 12 and 13 and the general purpose, benefits and costs of each (11 U.S.C. § 342). Consumer debts are debts incurred by an individual primarily for a personal, family, or household purpose (11 U.S.C. § 101). Those four are the consumer menu: Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter 12 (a repayment plan for family farmers or fishermen) and Chapter 13 (a repayment plan for individuals with regular income) (Bankr. E.D. La. official guidance — Chapter 7 Form Packet). Chapters 1, 3 and 5 are not chosen: they supply the definitions and administration rules that apply inside any Chapter 7, 11, 12 or 13 case (11 U.S.C. § 103).

Why does the chapter matter in a bankruptcy case?

The chapter sets the shape of the whole case: what happens to your property, whether there is a repayment plan, and what the discharge ends up covering. A bankruptcy case can help someone who owes more debt than they can pay either by liquidating assets to pay debts or by creating a repayment plan (Bankr. D. Md. official page — Legal Overview). Chapter 7 is described as being for individuals who are willing to allow their non-exempt property to be used to pay creditors, with the primary purpose of filing being to have debts discharged (Bankr. E.D. La. official guidance — Chapter 7 Form Packet). Chapter 13 is a voluntary repayment plan for individuals with regular income, and the Arizona bankruptcy court's chapter-choice guide notes that in Chapter 13 the discharge is granted only after all payments called for by the plan are complete.

How does the Code decide which chapters a person can use?

Section 109 of the Bankruptcy Code is titled "Who may be a debtor," and it works mostly by exclusion rather than by approval. It starts broadly: only a person who resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under title 11 (11 U.S.C. § 109). From there the statute lists who may not use a particular chapter. A railroad, a domestic bank or credit union, and a domestic insurance company are among those that may not be a debtor under Chapter 7 (11 U.S.C. § 109). Two more filters come from the official forms and notices rather than from that section: Chapter 13 is described as a plan for individuals with regular income, and Chapter 12 as a plan for family farmers or fishermen (Bankr. E.D. La. official guidance — Chapter 13 Form Packet).

What are the main exceptions or limits?

Every chapter has boundaries, and most of them concern who you are and what you owe rather than how much you are struggling. Corporations, partnerships and limited liability companies do not receive discharges and are not able to file Chapter 13, and different chapters and rules apply to them (U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?). Some individuals file Chapter 11 because their debts are too large for Chapter 13, and Chapter 12 is limited to family farmers and fishermen whose debts stay under a published ceiling. Chapter 7 carries an income filter of its own: an individual files Official Form 122A-1 comparing current monthly income to the median income for their state, and above-median filers complete the Chapter 7 Means Test Calculation (Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals).

How does Chapter 7 differ from Chapter 13?

Both are consumer chapters, and both begin the same way, with a petition whose filing triggers the automatic stay against collection (11 U.S.C. § 362). What differs is the engine. Chapter 7 is a liquidation: the trustee may sell property to pay debts, subject to the filer's right to claim exemptions, and exemptions are not automatic because property must be listed on Schedule C (Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals). Chapter 13 runs on a plan, and its discharge arrives only once the plan payments are complete. One difference is rarely noticed until it matters: Chapter 13 carries a codebtor stay, which generally stops a creditor from collecting a consumer debt from an individual who is liable on that debt with the filer (11 U.S.C. § 1301). Chapter 7 has no equivalent, and Chapter 12 has a similar codebtor stay (11 U.S.C. § 1201).

What does it cost to open a case under each chapter?

Filing fees are set nationally, so they do not change from district to district, though how you pay can. A Chapter 7 case carries a $245 filing fee (28 U.S.C. § 1930(a)(1)(A), (f)(1)), a $78 administrative fee (Bankruptcy Court Miscellaneous Fee Schedule, Item 8) and a $15 trustee surcharge (Bankruptcy Court Miscellaneous Fee Schedule, Item 9). A Chapter 13 case carries a $235 filing fee (28 U.S.C. § 1930(a)(1)(B)) together with a $78 administrative fee (Bankruptcy Court Miscellaneous Fee Schedule, Item 8). The statute permits an individual commencing a voluntary or joint case to pay the filing fee in installments, and the conditional Chapter 7 waiver does not extend to Chapter 13. Attorney fees, credit counseling course fees and local charges for later amendments sit outside these numbers, and each court publishes its own fee schedule. If the fee itself looks impossible, ask the clerk's office and a local attorney rather than guessing.

Do the chapters change from state to state?

No. The chapters are federal, and federal courts have exclusive jurisdiction over bankruptcy cases, so a bankruptcy case cannot be filed in a state court (Bankr. D. Md. official page — Legal Overview). The same four chapters are described to every individual filer in the notice the Code requires before a consumer case begins (11 U.S.C. § 342). What state law changes is the content poured into that federal frame. Exemptions, which decide what property a filer can claim as exempt, come substantially from state law, and the official instructions tell filers they must be familiar with any state exemption laws that apply (Bankr. E.D. La. official guidance — Chapter 13 Form Packet). The median income figure a Chapter 7 filer compares current monthly income against is state-specific and household-size specific. Those figures live on our state pages rather than here, because they change on their own schedule.

What do people most commonly get wrong about the chapters?

The most common error is reading the chapter numbers as a severity scale. They are categories, not grades, and a higher number is not a worse outcome. Three others come up constantly. First, a discharge does not reach everything: most taxes, most student loans, domestic support and property settlement obligations, most fines and criminal restitution, and debts left off the bankruptcy papers can survive it (Bankr. E.D. La. official guidance — Chapter 7 Form Packet). Second, a discharge releases personal liability but does not remove a valid lien; if a mortgage or other lien was not eliminated in the case, the creditor may still enforce it against the property afterwards (U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide). Third, dismissal is not discharge. On dismissal the automatic stay ends and creditors can resume collecting debts that were not discharged, and the order itself frees a debtor from nothing.

Frequently asked questions

How many bankruptcy chapters can an individual file under?

Four. The notice the Bankruptcy Code requires a clerk to give an individual with primarily consumer debts describes Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter 12 (a repayment plan for family farmers or fishermen) and Chapter 13 (a repayment plan for individuals with regular income) (11 U.S.C. § 342). Most consumer cases are filed under Chapter 7 or Chapter 13.

What is the difference between Chapter 7, Chapter 11 and Chapter 13?

Chapter 7 is liquidation, Chapter 11 is reorganization and Chapter 13 is a voluntary repayment plan for individuals with regular income. Chapter 11 is used by individuals mainly when their debts are too large for Chapter 13, and the Arizona bankruptcy court's chapter-choice guide notes that an attorney is almost always essential in those cases.

Can a case move from one chapter to another?

Yes, cases can be converted. The Code contemplates a Chapter 13 case being closed, dismissed or converted to a case under Chapter 7 or 11 (11 U.S.C. § 1301). Court instructions also note that a Chapter 7 filer facing a motion to dismiss may choose to proceed under another chapter (Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals). Conversion carries consequences worth discussing with an attorney.

Does filing under any chapter stop collection calls?

Filing a petition generally triggers the automatic stay, which the Maryland bankruptcy court describes as preventing creditors from bringing or continuing lawsuits, making wage garnishments, or even making telephone calls demanding payment while the stay remains in effect (11 U.S.C. § 362; Bankr. D. Md. official page — Legal Overview). The stay has exceptions, and a court can grant relief from it on request.

Is Chapter 12 relevant to most consumers?

Rarely. Chapter 12 is a voluntary repayment plan for family farmers or fishermen and carries its own debt ceiling, so most households never consider it. It does share one feature with Chapter 13: a codebtor stay that generally blocks collection of a consumer debt from an individual who is liable on that debt alongside the debtor (11 U.S.C. § 1201).

Which chapter should I file under?

That is a different question from which chapters are open to you, and it is not one a web page can answer. The choice turns on your income, what you own, what you owe and what you are trying to keep. Court guidance across districts says the same thing: have an attorney review the decision to file and the choice of chapter (Bankr. E.D. La. official guidance — Chapter 7 Form Packet).

Sources

• 11 U.S.C. § 101 — Definitions · official source
• 11 U.S.C. § 103 — Applicability of chapters
• 11 U.S.C. § 109 — Who may be a debtor · official source
• 11 U.S.C. § 342 — Notice · official source
• 11 U.S.C. § 362 — Automatic stay · official source
• 11 U.S.C. § 1201 — Stay of action against codebtor (Chapter 12)
• 11 U.S.C. § 1301 — Stay of action against codebtor (Chapter 13) · official source
• 28 U.S.C. § 1930(a)(1)(A), (f)(1) — Chapter 7 filing fee
• 28 U.S.C. § 1930(a)(1)(B) — Chapter 13 filing fee
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8 — Administrative fee
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9 — Chapter 7 trustee surcharge
• Bankr. E.D. La. official guidance — Chapter 7 Form Packet
• Bankr. E.D. La. official guidance — Chapter 13 Form Packet
• Bankr. D. Md. official page — Legal Overview
• Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide

Related

• What bankruptcy actually is
• Chapter 7
• Chapter 13
• The means test, explained
• Exemptions: what they cover
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