Bankruptcy in the United States

is a matter placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8), which allows Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States. Its implementation, however, is found in statute law. Much of the relevant statutes are incorporated within the Bankruptcy Code, located at title 11 of the United States Code, and amplified by state law in the many places where federal law either is absent or expressly defers to state law. Other bankruptcy statutes are found in titles 18 (crimes), 26 (internal revenue code) and 28 (judicial procedure) of the United States Code.

While bankruptcy cases are always filed in United States bankruptcy court (which are units of the United States district courts), bankruptcy cases, particularly regarding the validity of claims and exemptions, are often highly dependent on state law. State law therefore plays a major role in many bankruptcy cases, and it is often unwise to generalize bankruptcy issues across state lines.
 

Bankruptcy Chapters

Chapters of the bankruptcy code
There are several types of proceedings that fit under the general category of bankruptcy. Title 11 has multiple chapters, some of which provide different procedures available for debt resolution.

Bankruptcy Chapter 7: Liquidation
Liquidation under a Chapter 7 filing is the most common form of bankruptcy. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors.

Bankruptcy Chapter 9: Reorganization for municipalities
A Chapter 9 bankruptcy is available only to municipalities. Chapter 9 is a form of reorganization, not liquidation. A famous example of a municipal bankruptcy was in Orange County, California.

Bankruptcy Chapters 11, 12, and 13: Reorganization
Bankruptcy under Chapter 11, Chapter 12, or Chapter 13 is more complex reorganization and involves allowing the debtor to keep some or all of her property and to use future earnings to pay off creditors. Consumers usually file chapter 7 or chapter 13. Chapter 11 filings by individuals are allowed, but are rare.

Bankruptcy Chapter 12: Reorganization for Family farmers / fishers
Chapter 12 is similar to Chapter 13 but is available only to "family farmers" and "family fisherman" in certain situations. As recently as mid-2004 Chapter 12 was scheduled to expire, but in late 2004 it was renewed and made permanent.

Bankruptcy Chapter 15: Cross-border insolvency
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added Chapter 15 (as a replacement for section 304) and deals with cross-border insolvency i.e. foreign companies with US debts.