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Bankruptcy
Law | Chapter 7 | Chapter
11 | Chapter 12 | Chapter
13
Bankruptcy
Law
Bankruptcy law provides for
the development of a plan that allows a debtor,
who is unable to pay his creditors, to resolve
his debts through the division of his assets among
his creditors. This supervised division also allows
the interests of all creditors to be treated with
some measure of equality. Certain bankruptcy proceedings
allow a debtor to stay in business and use revenue
generated to resolve his or her debts. An additional
purpose of bankruptcy law is to allow certain
debtors to free themselves (to be discharged)
of the financial obligations they have accumulated,
after their assets are distributed, even if their
debts have not been paid in full.
Bankruptcy law is federal statutory law contained
in Title 11 of the United States Code. Congress
passed the Bankruptcy Code under its Constitutional
grant of authority to "establish. . . uniform
laws on the subject of Bankruptcy throughout the
United States."States may not regulate bankruptcy
though they may pass laws that govern other aspects
of the debtor-creditor relationship. A number
of sections of Title 11 incorporate the debtor-creditor
law of the individual states.
Bankruptcy proceedings are supervised by and
litigated in the United States Bankruptcy Courts.
These courts are a part of the District Courts
of The United States. The United States Trustees
were established by Congress to handle many of
the supervisory and administrative duties of bankruptcy
proceedings. Proceedings in bankruptcy courts
are governed by the Bankruptcy Rules which were
promulgated by the Supreme Court under the authority
of Congress.
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CHAPTER 7
Chapter 7 is the provision most
commonly used by individuals. In a Chapter
7 Bankruptcy, a trustee is appointed
by the court, the current assets are counted up
by the trustee who pays debts to the extent possible
with priority for taxes, then secured debts, and
finally unsecured debts. Then the court officially
declares the debtor bankrupt and discharges the
unpayable debts, to the loss of the creditors.
Exempt from sale to pay debts are a portion of
the value of a home, secured notes that can be
kept current, an automobile, tools of the trade,
furniture, and some other items. The concept is
to give someone a fresh start, but it has often
led to careless, profligate business operations
and casual running up bills with those giving
credit being badly hurt by bankruptcies. Not dischargeable
in bankruptcy are alimony and child support, taxes,
and fraudulent transactions. Filing a bankruptcy
petition automatically suspends all existing legal
actions, and is often used to forestall foreclosure
or imposition of judgment. After 45 or more days
a creditor with a debt secured by real or personal
property can petition the court to have the "automatic
stay" of legal rights removed and a foreclosure
to proceed. Upon official declaration of bankruptcy
a party cannot file for bankruptcy again for seven
years.
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Chapter 11
Chapter 11 bankruptcy is typically
used for business bankruptcies and restructuring.
It allows businesses to reorganize themselves,
giving them an opportunity to restructure debt
and get out of certain leases and contracts. Normally,
a business is allowed to continue to operate while
it is in Chapter 11 under the
supervision of the Bankruptcy Court and its appointees.
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Chapter 12
Chapter 12 bankruptcy allows
farmers with real estate debts to pay off the
debts from the profits generated by future crops.
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Chapter 13
Chapter 13 bankruptcy is a type
of provision in which consumers work out a periodic
payment plans with their creditors to pay off
all or most of their debts. One of the more important
benefits of Chapter 13 is that
the debtor generally can continue to live in their
home as long as he/she complies with the terms
of the Chapter 13 agreement. The disadvantage
of this is that debts can linger for years.
