Bankruptcy Reform Act of 1978

📌 Link to the Text of the Act

Read the statute (11 U.S.C. § 101 et seq.)

📌 Why It Was Done

The Act overhauled federal bankruptcy law, replacing the Bankruptcy Act of 1898 with the modern Bankruptcy Code, designed to balance debtor relief with creditor protections.

📌 Pre-existing Law or Constitutional Rights

The U.S. Constitution (Article I, Section 8) gives Congress power over bankruptcy, but laws before 1978 were fragmented. The old system was criticized as outdated and inconsistent.

📌 Overreach or Proper Role?

Supporters argue it provided a fairer, more efficient process for both individuals and businesses. Critics claim it has been abused, with too-easy discharges for consumers or too-generous reorganizations for corporations.

📌 Who or What It Controls

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  Individuals (Chapter 7 liquidation, Chapter 13 repayment plans)
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  Businesses (Chapter 11 reorganization)
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  Creditors (rules on claims and collections)
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  Bankruptcy courts (expanded jurisdiction and authority)

📌 Key Sections / Citations

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  Chapter 7: Liquidation
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  Chapter 11: Reorganization for businesses (and some individuals)
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  Chapter 13: Repayment plans for wage earners
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  11 U.S.C. § 362: Automatic stay provision (halts collection actions)

📌 Recent Changes or Live Controversies

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  Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA, 2005) tightened eligibility rules
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  Ongoing debates about student loan discharge, corporate bankruptcy abuses, and Chapter 9 for municipalities
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  Used in major reorganizations (e.g., GM, airlines, Purdue Pharma)

📌 Official Sources

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  Congress.gov – Bankruptcy Reform Act 1978
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  U.S. Courts – Bankruptcy Basics
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  11 U.S.C. – Bankruptcy Code