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Insolvency Dictionary-Canadian-Sands & Associates

Bankruptcy Law is federal law. The applicable statute is the Bankruptcy Reform Act of 1978 which became effective in 
1979 replacing the Bankruptcy Act of 1898, as amended. Generally the 1978 Act is referred to as the Bankruptcy Code, and to the previous law as the Bankruptcy Act. In 1984 and 
1986 major amendments were made to the Bankruptcy Code. Generally these amendments are referred to as the 1984 and 1986 Amendments. The Bankruptcy Code is supplemented by various provisions in Title 18 of the United States Code relating to bankruptcy crimes and in Title 28 of the United States Code relating to bankruptcy courts, jurisdiction in bankruptcy, bankruptcy procedure and administration. Bankruptcy procedure is also governed by Bankruptcy Rules promulgated under the authority of the Supreme Court of the United States.  
Bankruptcy, Jordan And Warren, 1989 2d, University Case Book Series, Foundation Press 

Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.

Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to "establish. . . uniform laws on the subject of Bankruptcy throughout the United States." See U.S. Constitution Article I, Section 8. States may not regulate bankruptcy though they may pass laws that govern other aspects of the debtor-creditor relationship. See Debtor-Creditor. A number of sections of Title 11 incorporate the debtor-creditor law of the individual states.

Bankruptcy proceedings are supervised by and litigated in the United States Bankruptcy Courts. These courts are a part of the District Courts of The United States. The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings. Proceedings in bankruptcy courts are governed by the Bankruptcy Rules which were promulgated by the Supreme Court under the authority of Congress.

There are two basic types of Bankruptcy proceedings. A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. 

Bankruptcy proceedings under Chapters 11, 12, and 13 involves the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. Under Chapter 7, 12, 13, and some 11 proceedings, a trustee is appointed to supervise the assets of the debtor. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding. The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings. Furthermore, certain pre-proceeding transfers of property, secured interests, and liens may be delayed or invalidated. Various provisions of the Bankruptcy Code also establish the priority of creditors' interests. Cornell University, LII.


Although bankruptcy is federal law the rights in bankruptcy of debtors and creditors are governed in large part by rights under applicable state law. In order to understand the rights of the creditor in bankruptcy it is essential to understand the various rights and remedies created by state law regarding the collection of a debt from a debtor in default. If the debtor does not voluntarily pay the debt the creditor normally obtains payment by first obtaining an interest, generically referred to as a lien, in the debtor's property. A creditor who has a lien may have the liened property sold and the proceeds of sale applied to payment of the debt. The lien may be obtained in a number of ways. It may arise as the result of a voluntary grant by the debtor; it may arise against the will of the debtor by judicial action taken by the creditor; or it may arise by operation of law because of the status of the particular creditor. Liens in these three categories are usually referred to respectively as consensual liens, judicial liens 
and statutory liens. Bankruptcy, Jordan And Warren, 1989 2d, (pgs1-3), University Case Book Series, Foundation Press 

• Federal Rules of Bankruptcy Procedure
• U.S. Supreme Court: Recent Decisions on Bankruptcy
• U.S. Circuit Courts of Appeals: Recent Decisions on Bankruptcy
• Federal Courts-Ninth Circuit-BAP Opinions
  (Bankruptcy Appellate Panel-9th Circuit)
• United States Supreme Court

Useful Offnet (or Subscription - $) Sources

• Good Starting Point in Print: Michael J. Herbert, Understanding Bankruptcy, Matthew Bender and Company Inc., New York, New York (1994)

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