Bankruptcy is the process by which individuals and companies can apply for protection from their creditors. For individuals, the goal of filing bankruptcy is often to achieve a discharge. A discharge permanently makes debt non-collectible. Technically, the debt still exists, but for all intents and purposes it is eliminated. Because of the financial nature of companies, they cannot receive a bankruptcy discharge. However, business can still enjoy protection from their creditors by filing bankruptcy. Once a bankruptcy is filed, creditors of the debtor are prevented from contacting the debtor in any way. This is known as the automatic stay. To read more about this please see Bankruptcy Frequently Asked Questions.
Bankruptcy is Federal Law, meaning that the law is enacted and controlled by the United States Federal Government, as opposed to the individual states. However, in some instances, Colorado being one example, the states set the amount and value of assets that can be protected in the bankruptcy process. These are known as exemptions. Thus, the bankruptcy law is uniform throughout the United States with the exception of the exemption rules as well as some local procedural rules.
There are 6 different types of bankruptcy, each known by the chapter of the code that describes it:
Chapter 7 - Liquidation or "traditional" or "straight" bankruptcy
Chapter 11
- Business reorganization
Chapter 13
- Individual debt adjustment
Chapter 9
- Adjustment of debts of a municipality
Chapter 12 -
Adjustment of debts of a family farmer
Chapter 15 - Ancillary and Other Cross-Border Cases
Chapters 7 and 13 are the most common forms of bankruptcy, as these are the types of bankruptcy available to individuals and small businesses. Which chapter you file depends on your unique situation, and your goals.
Please click here for the most commonly asked bankruptcy questions.