There are four types of bankruptcy cases provided under the law:
Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires a debtor to give up property which exceeds certain limits called “exemptions,” so the property can be sold to pay creditors.
Chapter 11, known as “reorganization,” is used by businesses and a few individual debtors whose debts are very large.
Chapter 12 is reserved for family farmers.
Chapter 13 is called “debt adjustment.” It requires a debtor to file a plan to pay debts (or parts of debts).
Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
If your income is above the median income for the family your size of your household in your state, you may have to file a chapter 13 bankruptcy. A higher income consumer must fill out a “means test” requiring detailed information about income and expenses. If, under the standards in the law, the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer cannot file a chapter 7 case, unless there are special extenuating circumstances.
There is no minimum dollar amount of debt required before you are allowed to file bankruptcy. There are, in fact, many reasons that a person with little to moderate debt may still want file bankruptcy. If you’d like to try credit counseling first, I recommend Consumer Credit Counseling Services of Hawaii. (I have no affiliation or connection with this organization)
The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
