Bankruptcy Law
Debt relief, liquidation, reorganization, and creditor rights under federal bankruptcy law.
Overview
Bankruptcy law provides a legal framework for individuals and businesses overwhelmed by debt to obtain a fresh start or restructure their financial obligations. Article I, Section 8 of the U.S. Constitution grants Congress the power to establish 'uniform laws on the subject of Bankruptcies,' and the Bankruptcy Code (Title 11 of the U.S. Code) is exclusively federal law, administered through specialized bankruptcy courts.
The three most common chapters of bankruptcy are Chapter 7 (liquidation), Chapter 13 (individual debt adjustment), and Chapter 11 (business reorganization). In Chapter 7, a trustee liquidates the debtor's non-exempt assets to pay creditors, and most remaining debts are discharged. Chapter 13 allows individuals with regular income to create a 3-5 year repayment plan while keeping their property. Chapter 11 enables businesses to continue operating while reorganizing debt under court supervision.
Bankruptcy filings trigger an automatic stay, which immediately halts most collection actions, foreclosures, garnishments, and lawsuits against the debtor. However, certain debts are generally non-dischargeable, including most student loans, recent taxes, child support, alimony, and debts arising from fraud. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) added a means test for Chapter 7 eligibility and imposed credit counseling requirements.
Key Statutes
Bankruptcy Code
11 U.S.C. § 101 et seq.
The comprehensive federal statute governing all bankruptcy proceedings, including Chapters 7, 11, 12, 13, and 15.
Bankruptcy Abuse Prevention and Consumer Protection Act
Pub. L. 109-8 (2005)
Major reform requiring means testing for Chapter 7, mandatory credit counseling, and other consumer protection measures.
Bankruptcy Rules
Fed. R. Bankr. P.
Procedural rules governing bankruptcy case administration, adversary proceedings, and contested matters.
Key Cases
Czyzewski v. Jevic Holding Corp.
580 U.S. 451 (2017)
Held that bankruptcy courts cannot approve structured dismissals that distribute assets in violation of the Bankruptcy Code's priority scheme.
Ransom v. FIA Card Services
562 U.S. 61 (2011)
Clarified the means test calculation for Chapter 7 bankruptcy eligibility, limiting certain vehicle ownership expense deductions.
Stern v. Marshall
564 U.S. 462 (2011)
Limited the jurisdiction of bankruptcy courts, holding they cannot issue final judgments on certain state law claims.
Lamar, Archer & Cofrin v. Appling
584 U.S. 709 (2018)
Held that a single statement about a single asset can constitute a 'statement respecting the debtor's financial condition' under the Bankruptcy Code.
Key Regulations
USTP Guidelines
U.S. Trustee Program
Guidelines for bankruptcy case administration, including review of fee applications and compliance monitoring.
Means Test Calculations
U.S. Trustee Program
Published median income data and expense allowances used to determine Chapter 7 eligibility under the means test.
Common Forms
Frequently Asked Questions
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 (liquidation) involves selling non-exempt assets to pay creditors, with most remaining debts discharged in 3-4 months. Chapter 13 (wage earner's plan) allows you to keep property while making payments over 3-5 years. Chapter 7 requires passing a means test based on income. Chapter 13 is available to those with regular income and debts below certain limits.
What debts cannot be discharged in bankruptcy?
Non-dischargeable debts typically include most student loans (unless you can prove undue hardship), child support and alimony, recent tax obligations (generally within 3 years), debts from fraud or intentional injury, certain government fines, and DUI-related debts. Criminal restitution and most government-backed loans also survive bankruptcy.
How long does bankruptcy stay on my credit report?
A Chapter 7 bankruptcy remains on your credit report for 10 years from the filing date. A Chapter 13 bankruptcy remains for 7 years. While bankruptcy initially damages your credit score significantly, many filers begin rebuilding credit within 1-2 years through secured credit cards and timely payments.
Will I lose my house in bankruptcy?
Not necessarily. Homestead exemptions protect a certain amount of equity in your primary residence. The exemption amount varies dramatically by state — from a few thousand dollars (some states) to unlimited (Florida, Texas, Kansas). In Chapter 13, you can keep your home while catching up on mortgage arrears through the repayment plan.
Recent Developments
Bankruptcy law has seen increasing attention to student loan discharge standards, with some courts adopting more flexible tests than the traditional Brunner standard. The Small Business Reorganization Act created Subchapter V of Chapter 11, providing a streamlined reorganization process for small businesses. Courts continue to address mass tort bankruptcies (such as those involving opioid manufacturers), the use of third-party releases in Chapter 11 plans, and the intersection of bankruptcy with cryptocurrency and digital asset holdings.
State Variations
While bankruptcy is federal law, states play a crucial role through exemption laws that determine what property debtors can protect. Some states allow debtors to choose between federal and state exemptions, while others require use of state exemptions only. Homestead exemptions range from modest (a few thousand dollars) to unlimited (Florida, Texas). States also vary in their treatment of wages, retirement accounts, and personal property exemptions.