Northern Pipeline Co. v. Marathon Pipe Line Co.

Bankruptcy is a process whereby an individual or corporation deeply in debt gains relief from that debt, in exchange for a marred credit record that will take years to correct. Under the most common form of bankruptcy as applied to individuals, the debtor, under orders from a judge, liquidates (sells off) all but a few exempt assets such as a car and house; then a court-appointed trustee repays creditors. Repayment may be only a percentage of the debt. For instance, the debtor may offer a creditor 64 cents in repayment for every dollar owed. This type of bankruptcy proceeding, called liquidation, is governed by chapter 7 of the U.S. bankruptcy code. Under another common type, rehabilitative bankruptcy, the debtor is allowed to keep assets in addition to the exempt assets, and a judge establishes a reorganization plan for repayment of debt. Rehabilitation, under chapter 11 of the code, is typically applied to persons with income great enough to facilitate repayment.