Explanation for Bankruptcy Law
Article 1, Section 8 of the United States Constitution authorizes Congress to establish uniform laws on the subject of bankruptcy. In "Debt's Dominion, A History of Bankruptcy Law in America," Professor David A. Skeel, Jr. writes about the history of congressional action, as shaped by economic, social, and political forces in the country's history. As he states, Congress enacted "bankruptcy laws in 1800, 1841, and 1867, . . . repealed each of the laws shortly after its enactment. . . . [and] [n]ot until 1898 did Congress finally enact a federal bankruptcy law with staying power." The Bankruptcy Act of 1898 was substantially rewritten by the Chandler Act of 1938 and then, following extensive study in the 1970's, was replaced by the 1978 Bankruptcy Code (Title 11 of the United States Code). The Bankruptcy Code was amended in 1984, 1986, 1994, and, most recently, by the Bankruptcy Abuse and Consumer Protection Act of 2005.
The Bankruptcy Code provides essentially two forms of relief from debt to both individuals and to most legal entities (such as a corporation or a partnership). Individuals may discharge debt under Chapter 7 of the Bankruptcy Code (sometimes referred to as a liquidation bankruptcy). Both individuals and most legal entities may restructure debt obligations (such as by reducing the amount owed or extending the time for payment). Individuals with regular income whose debts do not exceed stated levels may do so under Chapter 13 of the Bankruptcy Code (Adjustment of Debts of an Individual With Regular Income). Individuals whose debts exceed stated levels and most legal entities may do so under Chapter 11 of the Bankruptcy Code (Reorganization). A family farmer or fisherman may restructure debt under Chapter 12 of the Bankruptcy Code and municipalities may do so under Chapter 9 of the Bankruptcy Code. Chapter 15 of the Bankruptcy Code governs ancillary and other cross-border insolvency proceedings.
Bankruptcy law and procedure are also established by statutes criminalizing certain behavior relating to bankruptcy (in Title 18 of the United States Code), by statutes governing jurisdiction, venue, and appeals (in Title 28 of the United States Code), and by other miscellaneous statutes. The United States Trustee Program, a component of the Department of Justice, is responsible for overseeing private trustees who are appointed in individual cases and for a wide variety of other administrative duties.
Bankruptcy law and procedure are also established through the common law process - by literally thousands of judicial opinions, interpreting and applying the relevant statutes, issued by United States bankruptcy courts, United States district courts, bankruptcy appellate panels established in some federal circuits, by federal courts of appeal, and by the Supreme Court of the United States.
The map of bankruptcy law presented here divides the subject into two categories: Consumer Bankruptcy (Chapter 7 or Chapter 13 relief for individuals whose debts have been incurred primarily for personal, family, or household purposes) and Chapter 11 Reorganization (Chapter 11 relief for most legal entities and for individuals with high debt levels).