Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended several times since its enactment. It is the uniform federal law that governs all bankruptcy cases.
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases.
The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.
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The Courts for Bankruptcy
There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk’s offices.
The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts.
The Role of the Bankruptcy Trustee
Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse.
In each bankruptcy, the court will appoint a bankruptcy trustee. The trustee is charged with the responsibility of overseeing the bankruptcy process as it is occurring administratively, and outside of the courtroom. The bankruptcy trustee’s main responsibilities differ depending on the type of bankruptcy that is being filed. Chapter 7, Chapter 11, and Chapter 13 bankruptcies are the most commonly filed bankruptcies in the United States under the United States Bankruptcy Code.
Chapter 7 is commonly referred to as the “liquidation” bankruptcy. The trustee in a Chapter 7 liquidation bankruptcy takes the non-exempt assets of the person owing the debts, sells or liquidates them, and gives the profit to the creditors of the person owing the debt in order to satisfy some of the outstanding debt before discharge of the allowable remaining debt.
Chapter 11 is commonly referred to as the “reorganization” bankruptcy. The trustee in a Chapter 11 reorganization bankruptcy will work with the creditors of the person owing the debt in order to come up with a realistic reorganization plan. Chapter 13 is commonly referred to as the bankruptcy for people with “regular income.”
The trustee in a Chapter 13 bankruptcy by one with regular income monitors the repayments made in accordance with the new, reorganized, obligations, to ensure compliance by the person who owes the debt.