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.
