Private citizens who don’t own businesses and struggle to make ends meet can elect to file Chapter 7 or 13 bankruptcy, according to both the United States Bankruptcy Court and the book “How to File for Chapter 7 Bankruptcy.” Self-employed citizens or business owners who want legal assistance with past-due personal and business debts often elect to file Chapter 11 bankruptcy. Each major type of bankruptcy has its own set of legal protections and requirements, though all people planning to file bankruptcy in the United States must follow similar federal regulations such as completing a credit counseling session.
Chapter 7 permanently eliminates already-incurred debts such as credit card and medical bills, but not everyone can economically qualify for Chapter 7 bankruptcy, warns both the U.S. Trustee Program and the book “How to File for Chapter 7 Bankruptcy.” Bankruptcy reform laws passed in 2005 require that a debtor filing Chapter 7 either earn less than his state’s median annual income level or prove through a federal means testing formula that he can’t repay his debts and support his family. As of 2010, the annual median income figure for a single person living in Alaska was $52,130, while a family of four living in California could earn up to $79,477.
People who want to partially repay their debts or made too much money to file for Chapter 7 debt relief tend to file for Chapter 13 bankruptcy, according to both the United States Bankruptcy Court and the book “How to File for Chapter 7 Bankruptcy.” A Chapter 13 payment plan lasts three-to-five years; during this time frame, the debtor cannot legally get any new credit without court permission. Chapter 13 can potentially resolve past-due mortgage problems and debtors partially repaying their debts are more likely to retain their assets, including real estate interests. Also, Chapter 13 bankruptcy negatively impacts credit ratings for seven years from the date of filing as opposed to 10 years as in a Chapter 7 case.
Business debts are ineligible for any type of personal bankruptcy relief except through the Chapter 11 reorganization plan, according to both the United States Bankruptcy Court and the book “How to File for Chapter 7 Bankruptcy.” Chapter 11 operates in a similar fashion to Chapter 13; this type of bankruptcy allows business owners and self-employed people to reorganize their personal and business finances, partially repay debts and retain business and personal assets.
- "How to File for Chapter 7 Bankruptcy"; Stephen Elias, Albin Renauer and Robin Leonard; 2009
- U.S. Trustee Program: Census Bureau Median Income by Family Size
- U.S. Courts: Chapter 13
- U.S. Courts: Chapter 11
Stephanie Mojica has been a journalist since 1997 and currently works as a full-time reporter at the daily newspaper "The Advocate-Messenger" in Kentucky. Her articles have also appeared in newspapers such as "The Philadelphia Inquirer" and "The Virginian-Pilot," as well as several online publications. She holds a bachelor's degree from Athabasca University.