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Title 11 of the United States Code is commonly known as the Bankruptcy Code. Although the most comprehensive reform to the law happened in 1978, bankruptcy has been a part of our history since the origins of the United States Constitution. In Article 1, Section 8 of the Constitution, the Founding Fathers authorized congress to enact uniform laws on the subject throughout the United States. The most recent significant amendment to the Code happened in October 2005 with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

 

The Code is divided into nine main chapters. The most significant ones for a consumer debtor are chapter 7 or liquidation, and chapter 13, or adjustment of debts of an individual with regular income. Chapter 7 is the most commonly known chapter because it offers a debtor the ability to receive a discharge of their general unsecured debt while being in an active bankruptcy for less than four months on the average.

 

Chapter 13 is a three year or five-year debt repayment plan in which a percentage of the general unsecured debt is paid back thru a court-approved Chapter 13 plan. The plan is drafted by your attorney and presented to the Court for approval. The percentage of return to the general unsecured creditors is dictated by a formula commonly called "means testing". Understanding means testing is the subject of many debates and meritorious of its own forthcoming follow up article.

 

Not all debts in bankruptcy are dischargeable and not all debtors qualify for the two chapters here discussed. Each Chapter has different eligibility requirements that must be discussed before deciding which chapter is best for you. I encourage you to contact me personally to discuss your options.