In the United States, Bankruptcy law is federal law, under Article I, Section 8, Clause 4 of the United States Constitution. The substantive law of Bankruptcy is contained in Title 11 of the United States Code. There are two very different types of Bankruptcy. Most consumers pass into bankruptcy because they file, of their own volition a debtor's petition where they seek to have relief from their debts granted by the court under Chapter 7 Bankruptcy a court can make an order of this nature. Under Chapter 13 or 11 it is possible to restructure a debt through an extension of time to pay, a reduction in the total amount or some combination of both The other type of petition is a creditor's petition which is usually involuntary, this is where the creditor will bankrupt the debtor. This usually occurs when the debtor is owed a large sum which it does not expect can be paid back. The major types of bankruptcy fall into the categories outlined by the legislation under chapter 7, 11 and 13.
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Chapter 7 This is where the bulk of consumer cases lie. This is usually for individuals who have incurred debt for personal, family or household reasons. The effect of the Chapter 7 discharge is surrender to a bankruptcy trustee (a fiduciary representing the interests of unsecured creditors of the debtor) of the debtor's non-exempt assets. Exempt assets as well as the debtor's future earnings are free from the reach of the trustee and the debtor's pre-petition creditors. The exemption of certain assets, the protection of the debtor's future earnings (i..e. earnings attributable to work performed following the filing of the petition), and the discharge collectively provide the debtor with a "fresh start."
Chapter 13 This applies to individuals with regular income whose debts do not exceed prescribed limits called the "Adjustment of Debts of An Individual with Regular Income". The debtor proposes a plan to pay creditors from the debtor's future income. Unlike Chapter 7, the debtor in Chapter 13 will usually keep all of his or her property, whether or not exempt.
Chapter 11 This is available to individuals, corporations, and other entities but is mainly used by corporations, known as "Reorganization". Secured creditors fare better in either a Chapter 13 or Chapter 11 proceeding than their unsecured counterparts.
Naturally, Bankruptcy law is actually a very large and complicated area which can take a long time to work through. If you are facing bankruptcy or involved in bankruptcy proceedings, it it best to seek professional advice to reach a suitable solution in cases such as this.
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