There are three major types of bankruptcies: Chapter 7 is a liquidation, under which assets are distributed by a court-appointed trustee. If there are no assets, the debt is discharged and creditors receive nothing. Chapter 11 is a reorganization, used mostly by businesses, under which debts are restructured and a payment schedule is worked out. Chapter 13 is a debt repayment plan, under which debts are repaid in part or in full over a period of time, normally three years, under the supervision of a trustee.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA), which was the most comprehensive revision of bankruptcy laws in 25 years, instituted a means test that requires people who earn above their state’s median income and can repay at least $6,000 over five years to file for bankruptcy protection under Chapter 13, which mandates a repayment plan. (Under the previous law more debtors were eligible to file under Chapter 7, with its less stringent provisions). There was a precipitous drop in filings in 2006 after the law took effect. Filings rose steadily over the next four years, with annual increases of over 30 percent from 2007 to 2009 and an 8.1 percent rise in 2010. In 2010 a total of 1.6 million bankruptcy petitions were filed in U.S. courts, the greatest number since the 2.1 million bankrupties recorded in 2005. Bankruptcies declined 11.5 percent in 2011, the first drop since 2006.
BANKRUPTCY PETITIONS FILED BY TYPE, 2007-2011