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Bankruptcy: FEDERAL BANKRUPTCY LAW

The law of bankruptcy in the United States is governed primarily by federal law. Specialized federal bankruptcy courts hear bankruptcy cases and related proceedings.

Bankruptcy Laws:

The U.S. Bankruptcy Code was enacted by Congress in 1978 (Bankruptcy Reform Act of 1978, Pub. L. 95-598, Nov. 6, 1978). It is codified at Title 11 of the United States Code. The bankruptcy process is governed by the Federal Rules of Bankruptcy Procedure and local rules of each bankruptcy court. The Bankruptcy Rules also contain a set of official forms for use in bankruptcy cases. There is a bankruptcy court for each federal judicial district in the United States.

Subject Guide

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Gail Whittemore
Contact:
Pace University School of Law Library

78 North Broadway, White Plains, NY 10603
(914) 422-4357; fax: (914) 422-4412

WHO MAY FILE FOR BANKRUPTCY PROTECTION?

Consumer Bankruptcy:
The most common bankruptcy filing for consumers is under Chapter 13, which provides for the filing of a reorganization plan setting forth a repayment schedule for individuals with a regular income who have unsecured debts of less than $250,000 and secured debts of less than $750,000. The reorganization plan must be submitted within fifteen days of filing the bankruptcy petition and may not exceed five years in duration. Individuals may also file under Chapter 7, which involves liquidation by the bankruptcy trustee  of all of the debtor's non-exempt assets to pay as many of the petitioner's debts as possible, while leaving the debtor sufficient assets to carry on. Individual debtors who have debts in excess of the Chapter 13 limits or who own substantial nonexempt assets can also file for reorganization under Chapter 11.

Commercial Bankruptcy:
A corporation or partnership can petition for bankruptcy relief under chapters 7 or 11 of the bankruptcy code, but businesses often file a reorganization plan under Chapter 11 to keep their businesses alive and pay their creditors over time. The debtor entity acts as its own trustee in Chapter 11 proceedings, filing a disclosure statement and reorganization plan with the court, detailing a payment structure that will impair the rights of most or all of the creditors. The debtor's creditors must approve the filed reorganization plan. Chapter 11 permits a business to emerge from bankruptcy after the reorganization plan is completed.

U.S. Bankruptcy Law

U.S. bankruptcy judges are officers of the federal district courts. A bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. However, much of the bankruptcy process is administrative. In cases under Chapters 7, 12, or 13 of the Bankruptcy Code, and in some Chapter 11 cases, the administrative process is carried out by a trustee who is elected by the creditors or appointed through the U.S. Trustee program to oversee the case.

The goal of federal bankruptcy laws is to give both individual and corporate debtors a financial "fresh start" from burdensome debts. The Bankruptcy Code authorizes six different types of cases, designated by chapter:

     Chapter 7 (Liquidation)
     Chapter 9 (Adjustment of debts of a municipality)
     Chapter 11 (Reorganization)
     Chapter 12 (Adjustment of debts of a family farmer or family fisherman with regular annual income)
     Chapter 13 (Adjustment of debts of an individual with regular income), and
     Chapter 15 (Ancillary and other cross-border cases).

Section 109 of the Bankruptcy Code (11 U.S.C. § 109) contains detailed rules regarding a debtor's eligibility for bankruptcy relief. Bankruptcy cases can be commenced either by the debtor (voluntary case) or by the debtor's creditors (involuntary case). The filing of a petition commences the case and automatically constitutes an "order for relief." Only debts arising before the date of the order for relief are discharged (11 U.S.C. § 727(b)).

U.S. Bankruptcy Laws

U.S. Constitution, art. I, § 8, cl. 4:
The Congress shall have Power To . . . establish . . .uniform Laws on the subject of Bankruptcies throughout the United States.

United States Code:
TITLE 11 - Bankruptcy:
  • Chapter 1—General Provisions (§§ 101–112)
  • Chapter 3—Case Administration (§§ 301–366)
  • Chapter 5—Creditors, the Debtor, and the Estate (§§ 501–562)
  • Chapter 7—Liquidation (§§ 701–784)
  • Chapter 9—Adjustment of Debts of a Municipality (§§ 901–946)
  • Chapter 11—Reorganization (§§ 1101–1174)
  • Chapter 12—Adjustment of Debts of a Family Farmer or Fisherman With Regular Annual Income (§§ 1201–1231)
  • Chapter 13—Adjustment of Debts of an Individual With Regulat Income (§§ 1301–1330)
  • Chapter 15—Ancillary and Other Cross-Border Cases (§§ 1501–1532

Related Federal Statutes:
TITLE 26—Internal Revenue Code

  • Chapter 1 - Normal Taxes and Surtaxes
TITLE 28—Judiciary and Judicial Procedure
  • Chapter 6 - Bankruptcy Judges
  • Chapter 16 - Complaints Against Judges and Judicial Discipline
  • Chapter 39 - United States Trustees
  • Chapter 87 - District Courts; Jurisdiction
  • Chapter 123 - Fees and Costs
  • Chapter 131 - Rules of Courts.