Bankruptcy Court in the U.S.

Although bankruptcy laws in the U.S. date back to the late 1800s, the bankruptcy court was formally established under the Bankruptcy Reform Act of 1978.

The bankruptcy court differs from other courts in its jurisdiction and scope of authority in that it is the only court that can decide federal bankruptcy matters. While district courts handle a wide range of federal cases, from civil rights to tax disputes, bankruptcy courts deal solely with insolvency, debt restructuring, liquidation, and discharge of debts.

Since bankruptcy is such a delicate legal matter as it affects debt discharge and creditor-debtor disputes, understanding the procedures and requirements of the bankruptcy court matters not only for attorneys but also for debtors, creditors, and the public.

For attorneys, knowing the specialized rules of procedure of the bank is useful in navigating complex filings, objections, and hearings efficiently. In addition, a clear understanding of the court process will help debtors make informed decisions about filing, legal protections, and the types of debts that can and cannot be discharged. For creditors and the public, knowing their rights and remedies in the court can guide their claims and challenges, as well as reduce stigma around bankruptcy and promote responsible credit use.

What Is Bankruptcy Court?

A bankruptcy court is a specialized court dedicated to handling cases involving entities and individuals that are unable to repay their outstanding debts. Operating under the jurisdiction of the U.S. federal court system, the bankruptcy court is a unit of the U.S. district courts and is governed by the U.S. Bankruptcy Code.

Via the bankruptcy court process, the courts aim to:

• Provide a legal framework for honest debtors to obtain a fresh financial start.
• Protect the rights of creditors to receive fair compensation.
• Ensure equitable distribution of a debtor's assets.
• Maintain public confidence in the financial and credit systems.

Types of Bankruptcy Cases

The following are the most common types of bankruptcy cases in the United States:

Chapter 7 Bankruptcy: Liquidation

Chapter 7 bankruptcy is the most common form of bankruptcy in the United States. Also referred to as liquidation bankruptcy, it is designed to provide individuals, married couples, or businesses with a fresh financial start by legally discharging most unsecured debts after non-exempt assets are liquidated.

The purpose of this bankruptcy type is to relieve overwhelmed debtors of financial burdens they can no longer manage while also offering creditors partial repayment from any available assets.

It is suitable for individuals with low income who are unable to repay their debts, unsecured debt cases such as payday loans and medical bills, sole proprietors seeking personal debt relief, and businesses closing down permanently.

Note that to file for a Chapter 7 bankruptcy, an individual must pass the means test. This test compares the income of the individual to the state median. If their income is too high, they may be required to file under Chapter 13 instead of Chapter 7 bankruptcy.

Chapter 7 follows these five key stages and often concludes within 3-6 months of filing:

• The debtor files a petition and detailed schedules of assets, liabilities, income, and expenses with the bankruptcy court.
• An automatic stay immediately stops most creditor actions, lawsuits, and garnishments.
• A court-appointed trustee reviews the filings, identifies nonexempt assets, and oversees their liquidation.
• Nonexempt assets are sold under the trustee's supervision.
• Proceeds are distributed pro rata to unsecured creditors.

Upon finishing the liquidation and distribution process, the court issues a discharge order that eliminates remaining qualifying unsecured debts.

Chapter 11 Bankruptcy: Business reorganization

A Chapter 11 bankruptcy, often called reorganization bankruptcy, allows a debtor, typically a corporation, partnership, or an individual, with substantial debts to reorganize its operations and debts while continuing to operate.

Chapter 11 bankruptcy works following these processes:

• Petition filing: The debtor files a voluntary petition and schedules detailing assets, liabilities, income, and expenses.
• Automatic stay: An automatic stay halts creditor actions, lawsuits, and collection efforts immediately upon filing.
• Debtor in possession: The debtor usually continues to operate the business, exercising the powers and duties of a trustee unless a trustee is appointed for cause.
• Creditor committee formation: A committee of unsecured creditors may be formed to negotiate and monitor the reorganization process.
• Plan of reorganization: The debtor proposes a detailed plan outlining how it will restructure debts, which creditors vote on, and the court must confirm if statutory requirements are met.
• Confirmation and implementation: Once confirmed, the debtor implements the plan, making payments or altering contractual terms over time until obligations under the plan are satisfied.

Chapter 13 Bankruptcy: Wage earner's plan

Chapter 13 bankruptcy provides individuals with regular income a court-supervised framework to repay all or part of their debts under a structured plan. Often called a wage earner's plan, Chapter 13 bankruptcy enables debtors to keep their property and make affordable installment payments over three to five years, while creditors are stayed from collection actions.

It works in the following stages:

• Petition filing: The debtor files a petition, schedules of assets and liabilities, and a proposed repayment plan with the bankruptcy court.
• Automatic stay: Upon filing, an automatic stay halts most creditor lawsuits, garnishments, and collection calls.
• Plan proposal: The debtor's plan must provide for unsecured creditors at least as much as they would receive under Chapter 7 and specify monthly payments to a court-appointed trustee over three to five years.
• Plan duration: If current monthly income is below the state median, the plan term is three years unless the court permits up to five; if above the median, it generally must run for five years.
• Trustee administration: A Chapter 13 trustee collects plan payments and disburses them to creditors according to the confirmed plan's priorities.
• Confirmation hearing and discharge: Creditors vote on the plan, and the court confirms it if statutory requirements are met. After successful completion of payments, the debtor receives a discharge of remaining qualifying debts.

Chapter 12 Bankruptcy: Family Farmers and Fishermen

Chapter 12 bankruptcy offers family farmers and family fishermen with regular annual income a streamlined form of debt adjustment, enabling them to propose and carry out a court-approved repayment plan while continuing operations instead of liquidating assets.

A Chapter 12 bankruptcy works in the following ways:

• The debtor files a petition and schedules assets, liabilities, income, and expenses, triggering an automatic stay that halts most creditor actions.
• The debtor proposes a repayment plan to pay all or part of their debts over three to five years using disposable income.
• A trustee is appointed to collect installment payments and distribute proceeds to creditors.
• Plans generally run three years unless the court approves a longer period "for cause", but must extend to five years if domestic support obligations exist.

Chapter 9 Bankruptcy: Municipalities

Chapter 9 bankruptcy allows financially distressed municipalities, such as cities, counties, towns, villages, and public agencies, to negotiate a court-approved plan to restructure and adjust their debts while being protected from creditor lawsuits and asset liquidation.

Upon filing a Chapter 9 petition, an automatic stay halts most collection actions and gives the municipality breathing room to recommend a repayment plan. After, the debtor develops a plan showing how obligations will be adjusted or paid over time. Subsequently, creditors may form committees to negotiate plan terms, which will be approved by the bankruptcy court.

Chapter 15 Bankruptcy: Cross-Border Insolvency

Chapter 15 is the United States' implementation of the UNICTRAL Model Law on Cross-Border Insolvency. This chapter lets a foreign representative, such as a court-appointed liquidator or administrator from another country, open an ancillary case in the U.S. bankruptcy court to obtain help dealing with the debtor's U.S. assets, lawsuits, and creditors.

The goals of Chapter 15 bankruptcy are to ensure:

• Cooperation between U.S. courts and foreign courts/insolvency officials.
• Efficient administration of cases spanning multiple countries.
• Protection of creditors and the debtor's estate
• Consistent, predictable outcomes across borders.

The Bankruptcy Filing Process

The bankruptcy filing process starts with meeting eligibility and pre-filing requirements. Debtors must complete a court-approved credit counseling course within 180 days before filing to explore alternatives and make informed decisions. They must also compile financial records and pay a filing fee or request a waiver or installment plan if eligible.

Bankruptcy begins with submitting a voluntary petition (by the debtor) or an involuntary petition (by creditors) to the court. Involuntary petitions typically apply under Chapter 7 or 11 and require a debtor to owe a minimum amount. Once filed, the U.S. Trustee appoints a bankruptcy trustee to administer the estate and safeguard creditor interests.

In Chapter 7, the trustee sells nonexempt assets and distributes proceeds. In Chapter 13, the trustee manages the repayment plan. Filing triggers an automatic stay that halts foreclosures, wage garnishments, repossessions, and collection efforts.

Bankruptcy Court Records

Bankruptcy court records are generally public. Hence, most documents of the court are filed for public access and copying. However, sensitive information is redacted or sealed to protect privacy and security.

In accordance with Federal Rules of Bankruptcy Procedure and Judicial Conference guidelines, redacted bankruptcy records include the following:

• Social Security numbers
• Names of minors
• Bank account numbers
• Proprietary business information
• Full home addresses

For public bankruptcy court records, requesters may access them in the following ways:

• PACER: The Public Access to Court Electronic Records portal is the most widely used method of accessing case records from all U.S. bankruptcy courts. The portal allows users to search by debtor name, case number, court district, or filing date.

  Once logged in, users can view a wide range of documents, including bankruptcy petitions, schedules of assets and liabilities, motions, dockets, trustee reports, claims registers, and court orders. Note that it costs about $0.10 per page to view PACER bankruptcy records.

• In-Person Access at Courthouses: For those who prefer or require physical access, visiting the bankruptcy court in person is another option. This method can be particularly helpful for parties local to the courthouse or those seeking certified copies of documents.

• Trusted Third-Party Platforms: Court Case Finder (CCF) offers an alternative to using the PACER portal and in-person visit options to access public U.S. bankruptcy court records.

  CCF aggregates publicly available bankruptcy court records from across all jurisdictions into a single, searchable database. In addition, the platform offers user-friendly interfaces that simplify the process of locating cases and are invaluable to individuals researching their case, creditors tracking multiple filings, or journalists seeking to analyze bankruptcy statistics and trends.

Frequently Asked Questions in U.S. Bankruptcy Courts

The following are frequently asked questions about U.S. bankruptcy courts.