The current bankruptcy law, enacted in 1978, is known as the Bankruptcy Code. The Code was amended in 2005, however, the 2005 amendments do not apply to cases filed before or pending on the amendments' effective date, Oct. 17, 2005. The Code is supplemented by the Federal Rules of Bankruptcy Procedure, as well as local rules, which govern the procedures used in the bankruptcy courts.
The Code is set forth in Title 11 of the U.S. Code. It consists of nine chapters: 1, 3, 5, 7, 9, 11, 12, 13 and 15. Chapters 1, 3 and 5 are general applicability. Chapters 7, 9, 11, 12, 13 and 15 each deal with a particular type of bankruptcy proceeding. The Code refers to the financially troubled person or entity as the "debtor."
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Debtors file bankruptcy for a variety of reasons; including divorce, job loss and health problems. Pursuant to various stay provisions, debtors are, upon filing, entitled to a break from collection activities. By filing for bankruptcy, debtors may obtain a discharge of personal liability from many debts and may be able to restructure others.
There are two basic types of bankruptcy proceedings: liquidations and reorganizations. In liquidations, governed by chapter 7, the debtor's non-exempt assets are sold for the benefit of creditors. In exchange for surrendering these assets, the debtor generally obtains a discharge of personal liability for pre-bankruptcy debts and may enjoy assets acquired after the filing.
Chapters 11, 12 and 13 involve various types of reorganizations or payment plans. In bankruptcy reorganizations, the debtor's assets are not sold. Individual debtors, often file chapter 13 cases in order to save their homes. Reorganization bankruptcies allow a debtor the opportunity to restructure the debt and to pay it, either partially or in full, through a plan funded by his income. The plan must be confirmed by the court for it to be mandated upon creditors.
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