Bankruptcy is federal statutory law (Title 11 of the United States Code) based upon the Constitutional requirement for “uniform laws on the subject of Bankruptcy throughout the United States.” (Article I, Section 8).
Bankruptcy proceedings are undertaken in the United States Bankruptcy Courts, part of the District Court system. There are several types of proceedings that fit under the general category bankruptcy. The US Bankruptcy Code has multiple chapters, each describing a different procedure available for debt resolution.
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 under Chapter 11, Chapter 12, or Chapter 13 is more complex and involves allowing the debtor to use future earnings to pay off creditors. In addition, there is Chapter 9 bankruptcy, available only to municipalities; perhaps the most famous example of a municipal bankruptcy was in Orange County, California. Chapter 9 is a form of reorganization, not liquidation. Chapter 12 is somewhat like Chapter 13 but is only available to farmers in certain situations. As recently as mid-2004 Chapter 12 was scheduled to expire but in late 2004 it was given a renewed lease on life.
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