Bankruptcy Law Overview
Table of contents
The principal goal of bankruptcy is to give debtors a financial “fresh start” from their debt burdens. Bankruptcy procedure is governed by Title 11 of the Federal Code.
Article I, Section 8 of the United States Constitution allows the government “to establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States”. In with this amendment, Congress has enacted several laws governing bankruptcy including the Bankruptcy Reform Act Of 1978 and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Bankruptcy is a hybrid system of laws, its procedure controlled by Federal law and heard in Federal District court, but the exemptions allowed to the debtor are controlled by state law Federal Rules of Bankruptcy Procedure (Usually known as “Bankruptcy Rules”) and local rules of each bankruptcy court set the rules for the procedural parts of the system for the bankruptcy filings. The Bankruptcy Rules gives the formats of the legal forms required to be used in the bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules and the Set of Local Rules are all harmoniously synchronized to assemble Official Legal Procedures for handling the personal as well as the commercial bankruptcy filings. There are 90 Federal bankruptcy districts across the country.
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Though bankruptcy is a court-based process, much of the procedure is administrative and carried out by an appointed trustee. The debtor’s appearance is only required during a meeting unofficially known as "creditor's meeting" or “341 Meeting” where the creditors make inquiries into the debtor’s debts and assets.
There are six types of Bankruptcies in Title 11, commonly called by the chapters that describe them:
CHAPTER 7 BANKRUPTCY: - Straight Bankruptcy/Liquidation
Chapter 7 Bankruptcy or “liquidation bankruptcy” is where debtors (individuals, married couples, corporations, or partnerships) eradicate most of their unsecured debts & legal bills etc to get a fresh startby selling their nonexempt property and distributing the money among their creditors.
CHAPTER 9 BANKRUPTCY: - Reorganization of Municipalities.
Chapter 9 is designed to allow municipalities to restructure their financial matters.
CHAPTER 11 BANKRUPTCY: - Business Reorganization
Chapter 11 reorganizes the fiscal affairs of businesses and helps them to plan effective repayment plans.
CHAPTER 12 BANKRUPTCY: - Farming & Fishing Business Reorganization
Chapter 12 is the adjustments of debts for farmers and fishermen.
CHAPTER 13 BANKRUPTCY: - Adjustment of an Individual's Debts
Chapter 13 Bankruptcy or “wage earners bankruptcy” is where a debtor repays their outstanding debts through a structured repayment schedule in 3/5 years.
CHAPTER 15 BANKRUPTCY: - Insolvency Cases Involving other Countries
Chapter 15 Bankruptcy deals with international insolvency cases involving businesses.
Additional Resources
- Chapter 7 Vs Chapter 13
- Recent Changes to Bankruptcy Law
- How to File Bankruptcy
- Bankruptcy Filing Fees
- The Automatic Stay
- The 341-Meeting
Bankruptcy Laws overview | Faqs on Bankruptcy | Bankruptcy Terms
