Bankruptcy law allows a debtor that’s unable to pay his or her creditors to develop a plan to resolve his or her debts and pay of his or her creditors. Resolution of his or her debts through supervised division allows a debtor to pay back creditors. Some forms of bankruptcy proceedings allow the debtor to stay in business, using the revenue from the business to resolve the owed debts. Additionally, bankruptcy law is in place to grant certain debtors the chance to discharge (free themselves) of the financial obligations they have accumulated through distribution of their assets. This discharge can occur even if the debts have not been paid in full.

Federal Statutory Law

Bankruptcy law is a federal statutory law that is contained in the Title 11 of the United States Code. The Bankruptcy Code was passed by Congress under its Constitutional grant of authority to “establish…uniform laws on the subject of Bankruptcy throughout the United States. States are not able to regulate bankruptcy, but they are able to pass laws governing other aspects of the debtor-creditor relationship. Some sections of the Title 11 incorporate the debtor-creditor laws of those individual states.

Bankruptcy Supervision

The United States Bankruptcy Courts supervise and litigate the bankruptcy proceedings. These courts are a part of the District Courts of the United States. The United States Trustees were established by Congress in order to handle the supervision and administration duties that come with bankruptcy proceedings. Bankruptcy proceedings are governed by Bankruptcy Rules that were promulgated by the Supreme Court under Congress.

Two Types of Bankruptcy Proceedings

Chapter 7 – a trustee is appointed to collect the non-exempt property of the debtor. The trustee sells it and then distributes the proceeds to the creditors

Chapter 11, 12, 13 – rehabilitation of the debtor in order to allow him or her to use future earnings to pay off creditors.