Bankruptcy Cases

Bankruptcy in the United States is a federal legal process that enables individuals and businesses burdened by debt to seek relief and regain financial stability. It serves as an orderly system for resolving insolvency, either through liquidation of assets to repay creditors or reorganization of debts under court supervision.

The U.S. Bankruptcy Code establishes several key types of relief, including Chapter 7 for the liquidation of nonexempt assets, Chapter 13 for debt repayment through structured plans, and Chapter 11, which allows businesses to remain in operation.

Overview of U.S. Bankruptcy Law

The framework of bankruptcy law is rooted in the Constitution and governed by a uniform federal system designed to ensure fairness and consistency across all states. The constitutional authority for bankruptcy originates from Article I, Section 8, Clause 4, which grants Congress the power "to establish uniform laws on the subject of bankruptcies throughout the U.S".

Modern bankruptcy practice is codified in the Bankruptcy Code, found in Title 11 of the United States Code. The Code outlines the various forms of bankruptcy along with the procedures, rights, and obligations of all parties involved in a bankruptcy case, including debtors, creditors, trustees, and administrators.

The administration of bankruptcy cases falls under the jurisdiction of the federal court system, specifically the U.S. Bankruptcy Courts, which operate as units of the federal district courts. Each judicial district has its own bankruptcy court, presided over by bankruptcy judges. These judges interpret the Code, oversee hearings, and issue rulings on matters such as debt discharge, repayment plans, and creditor claims.

Objectives of Bankruptcy Law

The primary objective of bankruptcy law is twofold: to protect debtors from overwhelming financial pressure while ensuring the fair distribution of assets among creditors, and to promote financial rehabilitation rather than punishment.

• Debtor protection and equitable distribution to creditors: bankruptcy provides individuals and businesses with legal relief from insurmountable debt through mechanisms such as the automatic stay, which halts all collection efforts, wage garnishments, and foreclosure actions once a petition is filed. Equally important is equitable distribution to creditors, which ensures all claimants are treated fairly according to their legal priority.

• Promoting financial rehabilitation over punishment: beyond resolving debt, bankruptcy law emphasizes financial rehabilitation over punishment. The system is designed to enable honest debtors to recover, rebuild credit, and re-enter the economy as productive participants.

Types of Bankruptcy in the United States

The U.S. Bankruptcy Code outlines several distinct chapters, each tailored to specific financial conditions and debtors' profiles. These provisions outline the procedures for individuals, businesses, and foreign entities to seek debt relief under federal supervision.

Chapter 7 - Liquidation

Chapter 7 bankruptcy, also known as straight bankruptcy, provides a path for individuals or businesses with overwhelming debt to discharge most unsecured obligations through asset liquidation. Eligibility is determined by means test, which evaluates whether a debtor's income falls below the state median.

Exempt assets, such as basic household items, a primary residence, or retirement accounts, are protected, while a court-appointed trustee may sell non-exempt property. The process typically concludes within three to six months, ending with a discharge of eligible debts and a financial reset.

Chapter 13 - Wage Earner's Plan

Chapter 13 is designed for individuals with steady income who wish to retain their property while reorganizing debts through a three- to five-year repayment plan. The debtor proposes a repayment plan to the trustee, who distributes funds to creditors.

Under this plan, secured debts, such as mortgages and car loans, receive priority payments, while unsecured debts like credit cards receive partial repayment. Chapter 13 also allows debtors to halt foreclosure or repossession actions through the automatic stay, giving debtors time to catch up on missed payments and retain important assets.

Chapter 11 - Business Reorganization

Chapter 11 primarily serves corporations and partnerships seeking to restructure operations without closing their doors. Debtors typically remain in control as debtors-in-possession (DIPs), managing day-to-day operations while developing a reorganization plan to repay creditors over time, usually subject to court and creditor approval.

Large corporations use Chapter 11 to restructure complex debts, while Subchapter V of Chapter 11 provides a streamlined process for small businesses, reducing administrative costs and procedural burdens.

Chapter 12 - Family Farmers and Fishermen

Chapter 12 provides specialized protections for family farmers and fishermen whose livelihoods depend on seasonal income. This chapter combines elements of Chapters 11 and 13, allowing flexible repayment schedules aligned with agricultural or fishing cycles.

To qualify, most income must come from farming or commercial fishing, and debts must fall within specific statutory limits. Chapter 12 recognizes the unique financial challenges of agricultural and fishing operations. It provides flexible terms to preserve family-owned livelihoods, prevent foreclosure, and maintain continuity in rural economies.

Chapter 15 - Cross-Border Bankruptcy

Chapter 15 addresses cases involving international insolvency, where debtors, assets, or creditors span multiple countries. Adopted in 1997, it facilitates cooperation between U.S. Courts and foreign jurisdictions under the UNCITRAL Model Law on Cross-Border Insolvency. Its purpose is to coordinate international insolvency proceedings, recognize foreign representatives, and ensure fair treatment of creditors across borders.

The Bankruptcy Process Step by Step

While the timelines and complexity vary depending on the chapter filed, all bankruptcy cases follow a core legal framework grounded in the Bankruptcy Code and overseen by federal courts.

Pre-Filing Requirements

Before filing, debtors must complete a mandatory credit counseling session from a U.S. Trustee-approved provider within 180 days. Debtors must also prepare comprehensive financial disclosures, including income, assets, debts, expenses, and recent transactions, filed under penalty of perjury. Early assessment of eligibility and selecting the appropriate bankruptcy chapter (7, 13, 11, or 12) is essential to avoid procedural missteps and tailor relief to the debtor's circumstances.

Filing the Petition

A bankruptcy case officially begins when the debtor (or, in corporate cases, the entity) files the petition in a federal bankruptcy court with the required schedules and statements. Once filed, the automatic stay takes immediate effect, halting creditor collection efforts, lawsuits, and foreclosures. This protection remains in place throughout the case unless it is lifted by a court order.

Trustee Appointment and Role

The court appoints a trustee to administer the bankruptcy (Chapter 7 and 13) or allows the debtor to remain debtor-in-possession (Chapter 11). The trustee's role is as follows:

• Chapter 7, the trustee identifies and liquidates non-exempt assets.

• Chapter 13, trustees oversee repayment plans.

• Chapter 11, the trustee manages the property and operations of the debtor's business.

The 341 meeting of creditors is an early mandatory hearing where the trustee and any creditors may question the debtor under oath about finances and schedules. The 341 meeting of creditors is held within 20 to 40 days of filing.

Adversary Proceedings and Motions

Certain disputes, such as allegations of fraud, preferential payments, or objections to discharge, are handled through adversary proceedings, which function like a separate lawsuit within the bankruptcy case. Other issues, such as stay relief or claim disputes, are resolved through motions or court hearings, ensuring due process and judicial oversight.

Discharge and Case Closure

The discharge order is the final goal of bankruptcy, releasing the debtor from personal liability for most debts. Non-dischargeable debts include student loans, recent taxes, alimony, and child support. After discharge, debtors must complete a financial management course before case closure. Maintaining case records is crucial for debtors, as bankruptcy entries remain on credit reports for up to 7-10 years, depending on the chapter.

Bankruptcy Dockets and Record Access

Public access to bankruptcy case information is primarily provided through PACER (Public Access to Court Electronic Records), a nationwide online system managed by the Administrative Office of the U.S. Courts. PACER allows users to review case dockets, filings, and judicial orders.

Most bankruptcy courts maintain public access terminals at the courthouse, offering free on-site viewing. Users can search bankruptcy records by debtor name, case number, attorney, or filing date. Access to bankruptcy dockets and court records is available for a nominal per-page fee.

Public, Restricted, and Sealed Bankruptcy Records

Bankruptcy proceedings operate under the presumption of public access. Therefore, most bankruptcy records, including petitions, asset and liability schedules, trustee reports, court orders, and discharge notices, are open to public inspection through PACER or at the clerk's office.

However, not all documents are publicly available. Certain filings, such as those involving medical records, tax returns, and domestic support obligations, are restricted or sealed to safeguard sensitive personal or financial information, in compliance with statutory privacy protections. Parties may request to limit access to bankruptcy records by filing a motion to seal or redact the records.

Retrieving Bankruptcy Records Offline

Persons seeking physical copies of bankruptcy documents can visit the Clerk's Office of the U.S. Bankruptcy Court in the judicial district where the case was originally filed. Some courts provide on-site terminals for record searches, while others require formal written or electronic requests. To facilitate the search, requesters typically provide identifying details such as the case number, debtor's name, or approximate filing date. A valid ID is also required.

Retrieving copies of bankruptcy records typically requires a nominal fee for duplication, certification, or retrieval from off-site storage. Archival materials, especially those predating the mandatory electronic filing, are preserved by the National Archives and Records Administration (NARA).

FAQs About Bankruptcy Cases in the U.S.

Below are answers to some of the most frequently asked questions about bankruptcy in the United States.