The United States Constitution (in Article I, Section 8) empowers Congress to construct "uniform Laws on the subject of Bankruptcies." While various incarnations of debt relief solutions came and went over the years following the ratification of the Constitution, Congress employed their authority in 1978 to construct the basics of what we now call the Bankruptcy Code. These laws are contained within Title 11 (the eleventh “book” of laws) of the United States Code.

The processes which determine how a bankruptcy case is advanced toward resolution are governed by the Federal Rules of Bankruptcy Procedure (these are called the “Rules,” “Bankruptcy Rules,” or “FRBP” for short). Each local court also establishes its own “local rules.” Montgomery County, Bucks County, and Chester County (as well as Philadelphia itself) are all within the Eastern District of Pennsylvania; therefore, while the basic processes of a case filed in Norristown, for example, will mirror those of a case filed in Pittsburgh or even Los Angeles, there are unique nuances the debtor must attend to within each local jurisdiction. There are actually 90 bankruptcy districts, including Guam, Northern Mariana Islands, and the U.S. Virgin Islands. Each bankruptcy court generally has its own clerk or administrative office, as well.

As in any other judicial setting, the judge assigned to the case is the ultimate decision-maker (though any case is subject to appeal, if grounds exist to challenge a ruling; very few cases are actually appealed, however). This person is a United States Bankruptcy Judge, a judicial officer of the United States District Court, since bankruptcy is a sub-domain within the District Court schema. The bankruptcy judge can rule on any issue related to the bankruptcy case, including the legality of a filing, the true value a property is worth, or whether a discharge of debts is appropriate. In practice, the bulk of the typical consumer case (Chapter 7 or Chapter 13) is administrative and takes place outside the purview of the judge. For the most part, the judge only asserts his or her power when asked, such as when one party files a motion. In lieu of judicial oversight, then, each case is assigned instead to a “trustee.” This person assures compliance with bankruptcy rules and conducts a brief hearing to question the debtor about the debtor’s truth in answering the questions and the debtor’s understanding of the effects of the bankruptcy.

This hearing does not take place in court, and a Chapter 7 debtor will likely never see a bankruptcy judge or the inside of the courthouse. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing, but by this time, the plan has likely already been agreed to by the debtor and the trustee and the court appearance is little more than a quick rubber stamping.

The ultimate aim of the bankruptcy laws is to give people a financial "fresh start." The Supreme Court explicitly stated this in 1934 announcing that a discharge of debt “gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” This discharge effectively releases a debtor from personal liability related to most debts and prevents those to whom the money is/was owed from undertaking any action to collect the debt, including the filing of a lawsuit.

There are six fundamental forms of bankruptcy in the United States, each of which is identified by the chapter within Title 11 that governs it.

Chapter 7

Chapter 7 known as “liquidation,” addresses the request for immediate discharge. Conceptually, the trustee overseeing the case takes control of everything a debtor owns and then sells it for the benefit of creditors. Some items, subject to rules called “exemptions” cannot be taken by the trustee nor sold. Additionally, those items which are not yet paid off at the time of the filing –like a home or a car – can be kept, provided the debtor can afford the payments. The debtor appears at the 341(a) hearing and, assuming no issues, the discharge is given soon thereafter. Some debtors may not qualify for Chapter 7 if their income is above a certain ZIP code-determined threshold. In these instances, a debtor may be directed toward Chapter 13.

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Chapter 13

Chapter 13 is commonly known as a “wage-earner’s plan” (or, more formally, as an Adjustment of Debts of an Individual With Regular Income). It is the bankruptcy method appropriate for the debtor with regular income above a certain threshold or when certain special benefits allowed under Chapter 13 might serve the debtor’s purpose. For instance, a Chapter 13 allows a debtor late on their mortgage payments the opportunity to catch up on these payments over as long as five years. The Chapter 13 requires a “repayment plan,” at the end of which the debtor is given a debt discharge, similar to that given in a Chapter 7. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect.

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Chapter 9

Chapter 9 covers cities, counties, school districts and other governmental entities. The process of Chapter 9 is much like that of Chapter 11 (reorganization), but, because the debtor owes other, non-financial obligations to citizens, as opposed just to unique creditors, the applicable laws and rules are somewhat more restrictive. Only a "municipality" may file under chapter 9.

Chapter 11

Chapter 11 is called “Reorganization.” While a consumer may file for Chapter 11, it is generally used by commercial enterprises seeking to remain operational. After filing, the business is protected from collection actions during a period of at least 120 days, during which the company, its creditors, or both (through collaboration) construct a plan of reorganization. The plan can take almost any form: restructuring the debt, borrowing, selling inventory, breaking apart into separate entities, etc. The chapter 11 debtor must provide creditors with a disclosure statement containing information sufficient enough to enable the creditors to evaluate (or assist in the construction of) the plan. The court ultimately approves (confirms) or disapproves the plan of reorganization. When confirmed, the company “emerges” from Chapter 11 bankruptcy protection and goes about thereafter conducting business in accordance with the plan.

Chapter 12

Chapter 12 is very much the same as Chapter 13 but applies to the Family Farmer or the Fisherman with Regular Income.

Chapter 15

Chapter 15, and the Model Law on which it is based, is meant to provide a mechanism for dealing with insolvency cases involving debtors, assets, claimants, and other parties of interest involving more than one country. Generally, a chapter 15 case is secondary to a leading judicial case begun in a foreign nation. In addition, under Chapter 15, a United States Court may authorize a trustee or other receiver or examiner to operate within the foreign country on behalf of the effected bankruptcy estate.