Bankruptcy Basics

Bankruptcy 101

Bankruptcy law is federal law. This is so because Article I of the Constitution authorizes Congress to pass uniform bankruptcy laws – and it has done so. If you go to a bankruptcy court hearing, it will be held in a federal court. The present set of bankruptcy laws is known as the Bankruptcy Code and was enacted by Congress in 1978, and has been amended several times. While bankruptcy law is federal law, it does incorporate aspects of state law into it. For example in Kentucky, Debtors are permitted to use the federal exemptions or the Kentucky exemptions; however in Indiana, Debtors must use the Indiana exemptions. Additionally, the bankruptcy courts in Kentucky may interpret some aspects of the Bankruptcy Code different than the bankruptcy courts in other states such as Indiana.

Bankruptcy law has two components, one to provide discharge relief to the debtor, and the other to provide a framework (to the extent permitted by Congress) for the payment of creditor claims.

Most consumer cases are filed under Chapter 7 or Chapter 13 of the Bankruptcy Code. It is possible, but rare, for a consumer bankruptcy to be filed under Chapter 11 of the Bankruptcy Code. Most small business bankruptcies are filed under Chapter 7, Chapter 11 and Chapter 13 of the Bankruptcy Code.