Bankruptcy is a legally declared inability or
impairment of ability of an individual or organizations to pay
their creditors. Creditors may file a bankruptcy petition against
a debtor ("involuntary bankruptcy") in an effort to
recoup a portion of what they are owed. In the majority of cases,
however, bankruptcy is initiated by the debtor (a "voluntary
bankruptcy" that is filed by the bankrupt individual or
organization).
Bankruptcy in the United States is a matter placed under Federal
jurisdiction by the United States Constitution (in Article 1,
Section 8, Clause 4), which allows Congress to enact "uniform
laws on the subject of bankruptcies throughout the United States." The
Congress has enacted statute law governing bankruptcy, primarily
in the form of the Bankruptcy Code, located at Title 11 of the
United States Code. Federal law is amplified by state law in
some places where Federal law fails to speak or expressly defers
to state law.
While bankruptcy cases are always filed in United States Bankruptcy
Court (an adjunct to the U.S. District Courts), bankruptcy cases,
particularly with respect to the validity of claims and exemptions,
are often dependent upon State law. State law therefore plays
a major role in many bankruptcy cases, and it is often not possible
to generalize bankruptcy law across state lines.
Chapters
There are six types of bankruptcy under the Bankruptcy Code,
located at Title 11 of the United States Code:
- Chapter 7: basic liquidation for individuals and businesses;
- Chapter 9: municipal bankruptcy;
- Chapter 11: rehabilitation or reorganization, used primarily
by business debtors, but sometimes by individuals with substantial
debts and assets;
- Chapter 12: rehabilitation for family farmers and fishermen;
- Chapter 13: rehabilitation with a payment plan for individuals
with a regular source of income;
- Chapter 15: ancillary and other international cases.
The most common types of personal bankruptcy for individuals
are Chapter 7 and Chapter 13. (As much as 65% of all U.S. consumer
bankruptcy filings are of the Chapter 7 variety. Corporations
and other business forms often file under Chapter 7 or Chapter
11.
RESOURCES: Bankruptcy
United States Bankruptcy Courts
U.S. Courts: Periodicals: Bankruptcy Basics
Cornell University Law School: Bankruptcy Overview - Legal Information Institute
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