National Bankruptcy Authority (.com) - National Bankruptcy Law Authority Reference

Bankruptcy law in the United States operates under a unified federal statutory framework that directly affects millions of households and businesses each year, with the Administrative Office of the U.S. Courts reporting over 400,000 bankruptcy filings annually in non-pandemic years. This page covers the definition and scope of U.S. bankruptcy law, the procedural mechanics governing each major chapter filing, the scenarios that typically trigger each chapter's use, and the decision boundaries that distinguish one chapter from another. The 50-state legal services authority network described throughout this reference provides jurisdiction-specific coverage that supplements the federal baseline. For broader orientation to the legal system, the U.S. Legal System Conceptual Overview establishes the structural context within which bankruptcy courts operate.

Definition and Scope

U.S. bankruptcy law is codified at Title 11 of the United States Code (11 U.S.C. §§ 101–1532), commonly called the Bankruptcy Code. It is exclusively federal law — the U.S. Constitution, Article I, Section 8, Clause 4, vests Congress with sole authority to establish uniform bankruptcy laws across the states. No state may create a competing bankruptcy system, though states retain authority to define exemptions and property rights that the Code incorporates by reference.

The Code provides six operative chapters for substantive relief:

1. Chapter 7 — Liquidation: A trustee collects and liquidates non-exempt assets to pay creditors; the debtor receives a discharge of most unsecured debts.
2. Chapter 9 — Municipal Debt Adjustment: Available exclusively to municipalities, counties, and other governmental units that qualify under 11 U.S.C. § 109(c).
3. Chapter 11 — Reorganization: Primarily used by businesses but available to individuals; allows restructuring of debts under a confirmed plan while operations continue.
4. Chapter 12 — Family Farmer and Family Fisherman Reorganization: A specialized chapter with higher debt limits and a streamlined plan confirmation process.
5. Chapter 13 — Adjustment of Debts of an Individual with Regular Income: Allows individuals with income below statutory thresholds to repay debts over a 3-to-5-year plan.
6. Chapter 15 — Ancillary and Cross-Border Cases: Governs the U.S. aspect of insolvency proceedings that originate in foreign jurisdictions.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. 109-8, significantly amended the Code by adding the means test for Chapter 7 eligibility and tightening Chapter 13 plan requirements. The U.S. Trustee Program, a component of the Department of Justice, supervises the administration of bankruptcy cases and trustees in 88 of the 94 federal judicial districts (the remaining 6 districts, in Alabama and North Carolina, operate under a separate Bankruptcy Administrator program administered by the federal courts).

For terminology grounding across all legal proceedings, the U.S. Legal System Terminology and Definitions resource provides plain-language definitions of the procedural vocabulary appearing in bankruptcy filings and court orders.

The network's hub resource — the National Legal Authority Index — connects this bankruptcy reference to parallel subject-matter authorities across civil, criminal, and administrative law.

How It Works

Initiation

A bankruptcy case begins with the filing of a voluntary petition by the debtor, or in Chapter 7 and 11 cases, an involuntary petition filed by qualifying creditors under 11 U.S.C. § 303. The petition is filed in the U.S. Bankruptcy Court for the district where the debtor has maintained its principal place of business or domicile for the greater portion of the preceding 180 days.

The Automatic Stay

Filing immediately triggers the automatic stay under 11 U.S.C. § 362, halting virtually all collection actions, foreclosures, repossessions, and litigation against the debtor. The stay is one of the Code's most powerful features. It has specific exceptions — criminal proceedings, certain domestic support obligations, and tax audits are not stayed.

The Estate and Trustee

Filing creates a bankruptcy estate comprising all of the debtor's legal and equitable interests in property as of the petition date (11 U.S.C. § 541). A trustee is appointed in Chapter 7, 12, and 13 cases; in Chapter 11, the debtor typically continues as a "debtor in possession" with trustee-equivalent authority unless cause exists to appoint an independent trustee.

Exemptions

Debtors may exempt certain property from the estate. The federal exemption schedule appears at 11 U.S.C. § 522, but states may opt out of the federal schedule and require use of state exemptions. As of the most recent statutory count, 35 states have opted out of the federal exemptions, compelling debtors in those states to rely solely on state law.

Creditor Claims and Priority

Creditors file proofs of claim, and the Code establishes a strict priority waterfall governing distribution of estate assets:

1. Secured creditors (to the extent of their collateral value)
2. Domestic support obligations
3. Administrative expenses of the estate
4. Unsecured priority claims (wages, taxes, grain farmer deposits)
5. General unsecured creditors
6. Equity interest holders (if any surplus remains)

Discharge

In Chapter 7, discharge typically occurs approximately 60 to 90 days after the meeting of creditors (11 U.S.C. § 727). In Chapter 13, discharge follows completion of all plan payments. Certain debts are non-dischargeable by statute, including most student loans, recent tax debts, domestic support obligations, and debts incurred through fraud.

Common Scenarios

Individual Consumer Debt — Chapter 7 vs. Chapter 13

The most frequent filing scenarios involve individuals overwhelmed by credit card debt, medical bills, or job loss. The choice between Chapter 7 and Chapter 13 is largely determined by the means test established by BAPCPA. A debtor whose current monthly income, annualized, falls below the state median income for a household of equivalent size automatically qualifies for Chapter 7 without further analysis. A debtor above the median must pass a second test measuring disposable income against allowed expenses; a positive disposable income above the statutory threshold disqualifies the debtor from Chapter 7.

State-specific median income figures and exemption schedules make jurisdiction an active variable in this analysis. The Alabama Legal Services Authority covers Alabama-specific exemption structures, including the homestead exemption limits that directly affect Chapter 7 feasibility for Alabama residents. The Alaska Legal Services Authority addresses Alaska's unique exemption framework, which includes provisions for working equipment used in commercial fishing operations. The Arizona Legal Services Authority covers Arizona's opt-out status and the state's homestead exemption, which was increased by statute to $250,000. The Arkansas Legal Services Authority documents Arkansas's unlimited homestead exemption for rural properties within specified acreage limits, a significant factor in rural Chapter 7 cases.

Business Reorganization — Chapter 11

Chapter 11 is the primary vehicle for business restructuring. A debtor in possession files a disclosure statement and a plan of reorganization, which creditors vote on by class. Confirmation requires meeting one of two standards: the consensual "acceptance" standard (approval by each impaired class) or the "cramdown" standard under 11 U.S.C. § 1129(b), which permits confirmation over the objection of dissenting classes if the plan is fair and equitable.

The Small Business Reorganization Act of 2019 created Subchapter V of Chapter 11 (11 U.S.C. §§ 1181–1195), a streamlined reorganization track for small businesses with total debts below a statutory threshold (adjusted periodically by the Judicial Conference). Subchapter V eliminates the requirement for a creditors' committee and compresses the confirmation timeline.

The California Legal Services Authority addresses California business bankruptcy intersections with state commercial law, including California's version of the Uniform Commercial Code governing secured transactions that frequently appear in Chapter 11 asset disputes. The Texas Legal Services Authority covers the Texas bankruptcy court districts — Northern, Southern, Eastern, and Western — which