Two primary types of bankruptcy for individuals and small
businesses are Chapter 7 Liquidation (often referred to as straight
bankruptcy) and Chapter 13 Adjustment of Debts of an Individual with
Bankruptcy law is federal law. The Constitution of the United
States in article 1, section 8, clause 4 empowers Congress to
establish “uniform laws on the subject of Bankruptcies throughout
the United States.” Bankruptcy laws can be found in Title 11 of the
United States Code.
Chapter 13 Bankruptcy may be available for individuals with
regular income whose income is stable and regular to enable such
individual to make payments under a plan (usually for 3 to 5 years).
This includes wage earners, some self-employed individuals, and
individuals receiving disability, retirement or other regular
Chapter 13 Bankruptcy may be available to stop a pending
foreclosure or repossession of property.
Chapter 7 Bankruptcy filing creates a bankruptcy estate. A
Chapter 7 Bankruptcy trustee is appointed to examine the financial
affairs of the debtor. Further, Chapter 7 trustee would be in charge
of liquidating and distributing the debtor’s non-exempt property. In
the majority of cases, all the debtor’s property is exempt and kept
by the debtor (this is often called a no-asset case). There is
always some element of risk in a Chapter 7 bankruptcy case in that
property of the debtor can be sold by a liquidating Chapter 7
trustee with proceeds distributed to creditors.