Background
Bankruptcy allows those who are unable to pay their debts to arrange for partial repayment under the supervision of a bankruptcy court, after which any remaining debt is discharged. Debtors are thus allowed a "fresh start." Bankruptcy is governed by Title 11 of the United States Code, which was passed by Congress pursuant to article I, section 8 of the United States Constitution.
The United States Code is organized into titles, under which there are smaller subdivisions known as chapters. Within Title 11 (the entirety of which is known as the Bankruptcy Code), there are a number of chapters that define different types of bankruptcy cases:
- Chapter 7 provides debtors the ability to liquidate, or sell off, their assets and have them distributed to creditors;
- Chapter 9 allows municipal governments to declare bankruptcy;
- Chapter 11 provides for the reorganization of a business under court supervision;
- Chapter 12 provides a method for farmers and fishers to repay their debts;
- Chapter 13 provides a method for wage-earners or others with regular income to repay their debts; and
- Chapter 15 pertains to international bankruptcy cases.
Because Title 11, chapter 11 of the U.S. Code governs "reorganization," it is popularly assumed to pertain to businesses only. However, nothing in the Bankruptcy Code explicitly says that chapter 11 pertains to businesses only, and for this reason, the Supreme Court in Toibb v. Radloff held that individuals can also file for protection under chapter 11.
Read more about this topic: Toibb V. Radloff
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