What's the difference between chapter 7 bankruptcy and chapter 12?
First off, unless you are a family farmer or fisherman, you are probably not eligible for a Chapter 12. You probably want to know about Chapter 13 instead.
Chapter 7 and Chapter 13 are the primary chapters that most consumers file for bankruptcy under. The two are extremely different, as Chapter 7 is designed as a liquidation, while Chapter 13 is designed as a reorganization.
Under a Chapter 7 case, your case will usually last no more than four months, and requires you to turn over all valuable, non-exempt assets to a bankruptcy trustee for sale. You are also only eligible for a Chapter 7 if your income is below median, if you are above median but have very low disposable monthly income, or in certain other unusual cases.
In a Chapter 13 case, on the other hand, you will be required to pay the Trustee money for the next three to five years, depending on your income. You will propose a plan of repayment, which must be approved by the Court, and requires you to pay out your disposable monthly income each month. While you get to keep all of your property, even non-exempt property, you will be required to pay a minimum of the value of said property to your creditors; too little payment, and your plan will be denied. Chapter 13 also gives you a number of options you are not eligible for in Chapter 7, such as catching up on a mortgage, removing a second mortgage, and paying off debts which can’t normally be discharged, like income taxes, over time. However, you must have regular monthly income to qualify for Chapter 13, and you cannot file if you owe too much money.
In practice, you will want to file Chapter 7 if you meet the above test, if you have no significant assets which you would lose in the bankruptcy, and if Chapter 13 has nothing else to offer you. Please consult with a qualified bankruptcy attorney, and have them advise you as to what will fit your circumstances the best.