U.S. Bankruptcy laws were passed by Congress under a Constitutional grant of authority to establish uniform laws on the subject of bankruptcy throughout the United States. Although individual states may pass laws that regulate certain aspects of the debtor-creditor relationship, they are not empowered to regulate bankruptcy.

Bankruptcy proceedings are regulated through the United States Bankruptcy Courts, which are part of the Federal District Court system. Bankruptcy proceedings are governed by specific rules established by the Supreme Court under the authority of Congress.

There are two basic types of bankruptcy. A Chapter 7 filing, referred to as liquidation, is the most common filing. Under this arrangement, a Trustee is appointed to oversee the liquidation of the debtors non-exempt assets. The proceeds are distributed to the creditors. The other type of bankruptcy filing is rehabilitation, whereby the debtor is allowed to continue in business so those future earnings can be used to pay off the creditors.

A bankruptcy filing can be either an involuntary or voluntary type. Under the involuntary plan, creditors whose claims total at least $5000, may force the debtor into bankruptcy. The debtor, under any of the other bankruptcy chapters, may file voluntary bankruptcy.

Bankruptcy Chapters

Chapter 1

General Provisions.

Chapter 3

Case Administration.

Chapter 5

Creditor/ Debtor Estate issues.

Chapter 7

Liquidation. An appointed trustee sells all assets by auction or other means to pay creditors and trustee fees.

Chapter 9

Municipal bankruptcy.

Chapter 11

A business bankruptcy whereby an approved plan allows a business to gain temporary relief from paying a debt in order to attempt a successful reorganization. The debtor can remain in control of the business during the bankruptcy with court approval and the business continues to function.

Chapter 12

The debts of a family farmer, with an annual regular income, are rearranged.

Chapter 13

A bankruptcy plan available to an individual debtor with stable income allowing payment to be made through a trustee who disburses the funds to the creditors.