In the United States, bankruptcy laws allow for the relief of certain debts an individual, corporation, or partnership might have and cannot pay. Bankruptcy also sets up the repayment terms of debts that cannot be discharged. Finally, it also allows for the repayment of secure debts, such as a home or a vehicle that serve as collateral for the debt.
The United States Code contains the federal statutory bankruptcy law in Title 11. The Bankruptcy Code is the code that establishes laws related to bankruptcy in the United States. Bankruptcy is a federal matter that cannot be regulated at the state level. However, states are able to pass laws about other pieces of the relationship between the debtor and the creditor.
The United States Bankruptcy Courts, part of the District Courts of the United States, are responsible for supervising all bankruptcies in the country. Most of the administration and supervision of bankruptcies is handled by the United States Trustees. Lastly, bankruptcy courts’ procedures are run by the Bankruptcy Rules. The Supreme Court, under the direction of Congress, declared these rules.
Types of Bankruptcies in the United States
There are 5 bankruptcy chapters in the U.S. These are:
- Chapter 7: This allows the annulment of credit cards, personal loans, and other types of unsecured debts. Oftentimes, secured debts are not altered in any way, which means the individual or entity may remain the owner of the collateral as long as payments are being made on the debt. Chapter 7 bankruptcy is for people with mostly business debts and for corporations. Individuals cannot file a Chapter 7 bankruptcy unless they meet the income requirements for this type of bankruptcy.
- Chapter 9: This bankruptcy chapter has to do with the restructuring of local establishments and municipalities such as schools and hospitals owned by the county. Chapter 9 is not available to individuals or corporations.
- Chapter 11: This chapter is the most complete one in the Bankruptcy code, allowing for many different options when it comes to reorganizing debt for individuals and other entities. For example, Chapter 11 allows the entity to repay some debts, to annul others, and then reorganize the rest. Individuals must be aware that although Chapter 11 is a viable bankruptcy option, it does come with a high filing fees and administrative costs. Thus, most people choose either a Chapter 7 or a Chapter 13 bankruptcy instead.
- Chapter 12: This chapter is only for family farmers. It has many of the characteristics and features of Chapter 13, and it allows for the reorganization of these family farmers’ debts.
- Chapter 13: This chapter allows for the annulment of certain debts, while at the same time allowing for the repayment of other debts, all within 3-5 years. Chapter 13 permits the reduction in principal of some secured debt such as a mortgage. Only individuals may file Chapter 13 bankruptcies, as long as the income and debt qualifications are there and the process is completed successfully.
