Chapter 11 Information

Bankruptcy law is federal law and falls within the jurisdiction of the federal bankruptcy courts. Article I, Section 8 of the U.S. Constitution provides: "The Congress shall have power to . . . establish . . . uniform laws on the subject of bankruptcies throughout the United States." Of the several bankruptcy laws enacted by Congress under that authority, the 1898 Bankruptcy Act lasted for eighty years.

The framework of the current bankruptcy law is the Bankruptcy Reform Act of 1978, commonly known as the Bankruptcy Code. The Code underwent several amendments, the major ones being made in 1984 and 1994. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the most sweeping changes in the bankruptcy law since 1978.

While it is federal law, bankruptcy involves the interplay of many areas of federal and state laws, including taxes, domestic relations, property, and commercial transactions. Overall, more than 95% of the bankruptcy filings in the United States are individual consumer cases. In its 1997 report, the National Bankruptcy Review Commission, an independent commission established by federal law, stated that "no area of bankruptcy law is more complex than consumer bankruptcy," which "has become part of America's economic landscape."

One of the most powerful provisions in bankruptcy law is called the automatic stay. When you file bankruptcy, it triggers an automatic court order prohibiting all creditors from taking actions against you or your property, including lawsuits, garnishments, foreclosures, repossessions, or harassment. "It gives the debtor a breathing spell from his creditors . . . It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy" (Notes of Committee on the Judiciary, Senate Report No. 95-989). Keep in mind, however, that there are certain exceptions; also, the court may remove the protection under certain circumstances.

The ultimate advantage of bankruptcy is discharge. It is a court order that legally forgives any debt of yours that can be forgiven, meaning you don't have to pay it back. A creditor may not collect a discharged debt. Basically, you get a "fresh start."

The major parties in a bankruptcy case are:

    • Debtor, who is the entity that owes debt
    • Creditor, who is an entity that the debtor owes money to
    • A federal judge
    • A trustee (in certain chapters)
    • U.S. Trustee. The Office of the U.S. Trustee is a branch of the U.S. Department of Justice. Its primary duty to oversee the bankruptcy system in order to ensure its integrity.
  • There are six kinds of bankruptcy in the United States. They are named after the chapters in the Bankruptcy Code: Chapters 7, 9, 11, 12, 13 and 15. The most common types are Chapters 7, 13 and 11.

Chapter 11 Bankruptcy Can Be Complicated

The 2005 amendment to the Bankruptcy Code has made bankruptcy much more complicated and difficult. The numerous changes cannot be described adequately in a few sentences. The following are some of the highlights:

    • Adoption of a "means test," a mechanical and rigid mathematical formula based on the debtor's income, median income of the debtor's state, and various living expenses allowed by the Internal Revenue Service. It subjects debtors to defined standards in an effort to screen out people that may be able to afford to repay a significant portion of their debt
    • Heightened documentary requirements, including tax returns and paycheck stubs, and authority for the federal government to audit cases
    • Restrictions of the automatic stay for certain repeat filers
    • Stepping up of enforcement of domestic support obligations and tax liabilities
    • Requirements of credit counseling and debtor education courses

Basic difference between Chapters 7, 13 and 11

Chapter 7 allows one to keep certain assets and wipes out the personal liability on debts. There are debts that cannot be discharged in Chapter 7.

Chapter 13 is a repayment plan that includes all of one's debt, and the debtor repays the debt, in part or in full, as the case may be, over a period of up to five years. Only a natural person can file Chapter 13.

Chapter 11 is reorganization and is most commonly used by businesses. The reorganization plan allows the business to continue to operate, and repays, restructures or eliminates certain debts.

Begin Protecting Your Financial Future Today

Contact our offices by email or call 312-574-3327 to schedule your initial consultation. We will review your finances to help you determine if bankruptcy is the right option for you.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

The information below does not constitute legal advice on any specific situation. Readers should not act or rely on such information. We urge readers to seek the opinion of an attorney for their particular concerns, issues or problems. Mere visits to this site do not establish any attorney-client relationship

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.