Bankruptcy Law
Debt relief, Chapter 7, Chapter 13
Overview
Bankruptcy law provides a legal framework for individuals and businesses overwhelmed by debt to obtain relief while ensuring fair treatment of creditors. Federal bankruptcy law, codified in Title 11 of the U.S. Code, preempts state law and is administered through specialized bankruptcy courts within the federal court system.
Chapter 7 (liquidation) allows debtors to discharge most unsecured debts in exchange for surrendering non-exempt assets. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) added the means test to prevent abuse of Chapter 7 by debtors who can afford to repay some debts. Chapter 13 (adjustment of debts) allows individuals with regular income to repay debts over three to five years while keeping their property.
Chapter 11 (reorganization) is primarily used by businesses to restructure debts while continuing operations. The debtor typically remains in control as 'debtor-in-possession.' The Small Business Reorganization Act of 2019 created Subchapter V to streamline Chapter 11 for small businesses. Chapter 9 provides for municipal bankruptcy, and Chapter 12 covers family farmers and fishermen.
Key Federal Laws
- •Bankruptcy Code (11 U.S.C.)
- •Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
- •Small Business Reorganization Act of 2019
- •Bankruptcy Rules (Federal Rules of Bankruptcy Procedure)
- •28 U.S.C. § 1334 — Bankruptcy jurisdiction
Key Cases
- •Czyzewski v. Jevic Holding Corp. (2017) — Structured dismissals
- •Stern v. Marshall (2011) — Bankruptcy court authority
- •Rousey v. Jacoway (2005) — IRA exemptions
- •Lamar, Archer & Cofrin v. Appling (2018) — Fraudulent statements
- •Bartenwerfer v. Buckley (2023) — Fraud discharge exception
State Variations
While bankruptcy is federal law, state law plays a crucial role in determining exempt property that debtors can keep. About 30 states allow debtors to choose between federal and state exemptions, while roughly 20 require the use of state exemptions. Homestead exemptions range from a few thousand dollars (in some states) to unlimited (Texas, Florida). Vehicle, personal property, and wildcard exemptions also vary substantially by state.
Frequently Asked Questions
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 liquidates non-exempt assets to pay creditors and discharges remaining qualifying debts, typically completed in 3-4 months. Chapter 13 creates a 3-5 year repayment plan allowing debtors to keep their property while repaying a portion of debts. Chapter 7 requires passing the means test (income below state median or insufficient disposable income). Chapter 13 is available to those with regular income and debts below statutory limits.
What debts cannot be discharged in bankruptcy?
Non-dischargeable debts include most student loans (unless extreme hardship is proven), child support and alimony, most tax debts less than three years old, debts from fraud, criminal fines and restitution, DUI/DWI judgments, and debts not listed in the bankruptcy petition. Recent luxury purchases and cash advances may also be non-dischargeable.
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