The United States Bankruptcy Court in Michigan handled 13,533 bankruptcy cases in 2022. And most cases are Chapter 7 bankruptcy, with 9,266 filings. You might choose to file bankruptcy if you want a legal way to erase some of your debt when repayment is impossible or overwhelming.
Types of bankruptcy
There are four common types of bankruptcy in the United States. Knowing which type is best for you requires research.
- Chapter 7 bankruptcy is the option that allows you to erase some or all of your unsecured debt. If the bankruptcy court decides you can repay some or all of your debt, you’ll likely have to choose Chapter 13 bankruptcy and follow a bankruptcy repayment plan.
- Chapter 11 bankruptcy is common for businesses. It allows a business to reorganize finances and negotiate a repayment plan with creditors. The business stays open and has more time to repay its debts. Individuals can file Chapter 11 if they meet certain criteria, such as an excessive amount of debt or a complicated financial situation.
- Chapter 12 bankruptcy is for family farming or fishing operations. This form of bankruptcy allows farming or fishing operations to continue but requires a repayment plan like with Chapter 13.
- Chapter 9 bankruptcy is available to cities, towns, counties and other government organizations. And Chapter 15 bankruptcy is for foreign companies that also have operations in the United States.
Filing for bankruptcy
Not all bankruptcies are the same, and the filling process varies depending on which type of bankruptcy you file. But no matter the type of bankruptcy, you’ll need a list of all your assets and debts. The United States Bankruptcy Code also requires pre-bankruptcy credit counseling.
You also have to meet certain criteria for specific types of bankruptcy. For example, you must have a steady income to file Chapter 13 bankruptcy. And your debt must fall below a certain limit.
You file your bankruptcy petition with your local bankruptcy court. At that point, your steps depend on the type of bankruptcy you’re filing. Keep in mind bankruptcy doesn’t erase all debt. Taxes, student loans, child support or alimony are usually exempt. Court penalties and fines are also exempt.
Bankruptcy is possibly a good decision if your debt has become overwhelming. It will hurt your credit score, but you can rebuild your credit with time.