Chapter 25 - § 25.2 • FOUR TYPES OF BANKRUPTCY

• Jurisdiction: Colorado

§ 25.2 • FOUR TYPES OF BANKRUPTCY

The Bankruptcy Code is divided into chapters. See 11 U.S.C. § 109 (setting forth the requirements for eligibility of each bankruptcy chapter). Most individual debtors file either a Chapter 7 or a Chapter 13 bankruptcy. Chapter 11 is generally for business reorganizations and a Chapter 12 is only for farmers and fishermen.

§ 25.2.1—Chapter 7

A Chapter 7 bankruptcy gives debtors a fresh start and is commonly referred to as a liquidation bankruptcy. All non-exempt property (property the debtor must forfeit in the bankruptcy) owned by the debtor on the date of filing is sold or liquidated to pay creditors.² A Chapter 7 is relatively quick, with the debtor typically receiving his or her discharge 120 to 180 days after the initial filing.

Generally, in order to qualify for a Chapter 7 bankruptcy, the debtor's current monthly income (annualized by looking at the debtor's income for the six full months prior to filing) must be lower than the median family income in the state where the debtor resides (known as the "means test").³ Debtors whose debts are primarily business debts do not need to qualify under the means test. 11 U.S.C. § 707(b)(1). The means test is also not applicable to certain disabled veterans, active duty military, deployed National Guard and reserve members, and certain recently released military, guard, or reserve members. 11 U.S.C. § 707(b)(2)(D).

In a routine Chapter 7 case, most debtors complete the following steps:

1) Complete an online credit counseling course from an approvedagency;
2) Complete and file a bankruptcy petition using approved forms, schedules, and documents, and pay the filing fee;⁴
3) Provide the bankruptcy trustee with his or her most recent tax return;
4) Attend a short § 341 meeting of creditors with a bankruptcy trustee;
5) Complete an online personal financial management counseling course; and
6) Wait for their bankruptcy discharge.

In a Chapter 7 bankruptcy, most pre-petition debts listed in the petition are discharged, 11 U.S.C. § 727(b), with the exception of:

1) Debts that automatically survive bankruptcy; and
2) Debts that the court has declared "non-dischargeable" as a result of an action brought by a creditor objecting to the discharge of one or more specific debts (such actions are known as "adversary proceedings" in the bankruptcy court).

In the first category above, debts that automatically survive a Chapter 7 bankruptcy are listed in 11 U.S.C. § 523(a), which sets forth 16...