The U.S. Constitution (Article I) gives Congress the exclusive power to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” The Federal statute is the Bankruptcy Reform Act of 1978. Significant amendments have been made by the Bankruptcy Reform Act of 1994 and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The Bankruptcy Code

Bankruptcy is a formal way of resolving the conflict between creditor rights and debtor relief. The objectives are to ensure that debtor assets are fairly distributed to creditor and the debtor is given a fresh start.

Administration of Proceedings

Each Federal judicial district has its own bankruptcy court. A judge hears the case after the moving party files a petition that identifies the applicable chapter.

The filing of any petition operates as an automatic stay of most civil actions, including those by secured parties, against the debtor or his or her property until the court acts. The filed petition, however, does not terminate security interests or liens. The following are activities not stayed:

  • Alimony and child support collection
  • Criminal proceedings
  • Issuance of a notice of tax deficiency

The bankruptcy judge conducts the core proceedings. They resolve issues most directly related to reorganization or discharge, such as:

  • Allowing creditor claims
  • Determining the relative priority of creditor claims
  • Confirming a plan of reorganization
  • Granting a discharge

Non-core proceedings are resolved in State or other Federal courts but may affect rights of the creditors or debtor. They generally involve property rights, personal injury claims, and divorce.

Termination of the Stay


A secured creditor may ask the court to reorganize the priority of the existing security interest and allow foreclosure.

The stay may be terminated because of serial filings suggestive of bad faith or abuse. If a Chapter 7, 11, or 13 case is filed within a year after a dismissal of another case, the generally stay terminated after 30 days. However, the stay continues to be in effect if the new filing is shown to be in good faith.


Originally posted 2018-07-24 20:37:57.

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