Bankruptcy filings in the U.S. significantly increased in 2023, rising by 13% compared to the previous year. Business bankruptcies, in particular, rose by nearly 30%. This marks a reversal after more than a decade of declining numbers, a trend likely driven by post-pandemic economic challenges and inflation.
There are two major forms of bankruptcy for individuals: Chapter 7, known as liquidation bankruptcy, and Chapter 13, known as the wage earner’s plan.
Chapter 7 bankruptcy accounted for 66% of total filings in 2023, continuing its dominance as the most common form of personal bankruptcy in the U.S.
This type of bankruptcy allows individuals to liquidate their non-exempt assets to discharge most debts. An individual asks the bankruptcy court to wipe out unsecured debts like credit cards, medical bills, and personal loans. A court trustee pays off as many creditors as possible by selling off non-essential property, which means anything that has value but you don’t need to get by. Common examples of non-essential property are jewelry, art, stamp collection, second house/car, and fur coat.
Chapter 13 bankruptcy is a repayment plan that acts like a debt consolidation loan. You are asked to develop a repayment plan that takes care of all or most of your debts. The repayment plan typically lasts 3-5 years, and your assets are protected from foreclosure and repossession while you repay them. Legal advice could be helpful when choosing the most suitable form of bankruptcy, but nothing prevents you from starting the process “pro se,” which means “on one’s own behalf.”