There are four kinds of bankruptcy proceedings. They're commonly known by the different chapters of the federal bankruptcy code that covers them:
Chapter 7 is the most common type of bankruptcy proceeding. Individuals, married couples, corporations and partnerships can use Chapter 7. In most of these cases, all or most of your debts are discharged or extinguished.
A bankruptcy trustee is appointed to the case and controls all of your assets, and may sell anything that isn't exempt to pay your debts.
Chapter 11 is a reorganization proceeding, usually used by corporations or partnerships. Here, a business tries to reorganize its outstanding debts and continue business operations.
The debtor, called the debtor-in-possession, prepares a reorganization plan. It sets out which debts will be paid off, how much and when. It must be approved by the court and the creditors. Generally, the plan must provide for paying creditors at least as much as they would have been entitled to be paid in a Chapter 7 liquidation proceeding.
Through Chapter 11, a business can reduce or eliminate debt and try to make itself profitable again, paying creditors out of future income. However, it isn't easy to salvage a business through Chapter 11, and many cases end up converting to a Chapter 7.
This is a reorganization bankruptcy for family farmers. It's modeled after Chapter 13. Framer-debtors keep their properties and pay creditors out of future income.
Chapter 13 is a repayment plan for individuals only. Debtors keep all or most of their belongings in exchange for making regular payments to their creditors over a period of time, usually 3 or 5 years.
Repayments are made according to a repayment plan made out by the debtor. The plan must approved by the court and the creditors.
As a business owner, it's critical that you and your attorney discuss which type of bankruptcy is best for you and your business.