Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to establish uniform laws on the subject of bankruptcy throughout the United States.
Bankruptcy provides for:
Development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors.
The interests of all creditors to be treated with some measure of equality.
Certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.
Certain bankruptcy proceedings to allow a debtor to stay in business and use revenue generated to resolve his or her debts.
Bankruptcy proceedings to be supervised by and litigated in the United States Bankruptcy Courts. These courts are a part of the District Courts of The United States.
Proceedings in bankruptcy courts to be governed by the Bankruptcy Rules, which were promulgated by the Supreme Court under the authority of Congress.
Trustees established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings.
There are two basic types of bankruptcy proceedings:
Chapter 7 Liquidation
Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it, and distributes the proceeds to the creditors.
Chapters 11, 12, and 13 Rehabilitation
Rehabilitates the debtor to allow him or her to use future earnings to pay off creditors.
Under Chapters 7, 12, 13, and some Chapter 11 proceedings, a trustee is appointed to supervise the assets of the debtor.
A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding. Various provisions of the Bankruptcy Code also establish the priority of creditors’ interests.
The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings. In addition, certain pre-proceeding transfers of property, secured interests, and liens may be delayed or invalidated.