A brief synopsis on Bankruptcy
The Constitution of the United States has authorized the Congress to ratify Laws on the topic of Bankruptcies as stated in Article 1, Section 8. In 1978, the bankruptcy code has been ratified by the Congress via the power vested to it through the grant of Authority. In the United States code, the Bankruptcy code has been given the title 11 and has been altered numerous of times beginning its ratification. In all cases of bankruptcy, it has been the federal law that rules over it.
The Federal Rules of Bankruptcy Procedure, often times referred to as Bankruptcy rules, govern the features of the procedure of the bankruptcy course. Add to this the local rules of each bankruptcy court. There are sets of certified forms inside each of the Bankruptcy Rules that is used in bankruptcy cases. Both the Bankruptcy rules and codes lead the way to the formal legal process for transacting with the problems of businesses and individuals on their debt.
Bankruptcy Courts
In the country, there is a judicial district with a bankruptcy court. It is possible for a state to have several districts and across the country; there is as much as 90 bankruptcy districts. Generally, each of these bankruptcy courts has their own offices for clerks.
The United States bankruptcy judge is a judicial officer of the US district court and who also have the official capacity to decide over bankruptcy cases. The bankruptcy judge has the decision making power to give judgment on any subject along the lines of a bankruptcy case such as the eligibility of the debtor to be discharged of his debts.
Most of these bankruptcy cases are not conducted in courthouses because of its administrative process. For bankruptcy cases under any of the following chapters: 13, 12 or 7 and even for chapter 11, a trustee may be appointed to supervise and carry out the administrative process.
The involvement of the debtor and the judge is very small. Usually, when a debtor files for a chapter 7 bankruptcy, there is no need for the individual to show in court, only for the instances when there is an opposition lifted in court. For a debtor filing under chapter 13, he only needs to show in court during the hearing on plan confirmation.
Almost always, the debtor will only appear in a formal proceeding is during the creditors’ meeting, wherein this meeting is held in the US trustee’s office. This meeting is usually referred to as the “341 meeting” taken from the Bankruptcy code section 341, which states that the nonpayer is required to meet with his creditors in order to answer questions regarding his properties and debts.
The Bankruptcy System and its Goals
The basic goal of the Bankruptcy goal is to give debtors the fresh start financially and freeing them from burdensome debt, this is as enacted by the Congress on federal bankruptcy laws. This has been pinpointed by the Supreme Court in a 1934 decision regarding the reason of bankruptcy law.
Local Lon Co. v. Hunt, 292 U.S. 234, 244 (1934). [It] gives to the honest but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
This basic goal of the bankruptcy law is done through the bankruptcy emancipation, whereby it liberates the debtor from personal accountability from detailed debts and creditors are forbidden to gather or make any action regarding the collection of the detailed debts.
The Different Kinds of Bankruptcy
Under the bankruptcy Code, there are 6 different categories of bankruptcy cases. Each of the cases is known for the appellation of the chapters that explain them.
Chapter 7
This is known as the liquidation. It considers an orderly and supervised by the court process to preside over the properties of the debtor and convert these into cash and distribute it to the debtor’s creditors. This is overseen or done by the appointed trustee. Further, the debtor has the right to keep hold of certain properties that are exempt plus the rights of the secured creditors.
In most of Chapter 7 cases, there is little to none properties that are nonexempt, so there may be no definite liquidation of debtor’s properties, these cases may be referred to as “no asset cases”. An unsecured creditor can only get a distribution from the bankruptcy estate, once he files a proof of claim at the bankruptcy court.
Usually, if the individual is the debtor, he or she may be released from any liability to pay creditors especially if these debts fall under the category of dischargeable debts. A few months after the filing of a bankruptcy case, a debtor can already receive a discharge from his debts.
However, amendments to the Bankruptcy Code that will hinder its abuse, needs the debtor to undergo a means test, in order to know if the debtor is eligible for chapter 7 relief. However if one’s income exceeds the standard mean, then one is not eligible for relief under the chapter 7.
Chapter 13
This is known as the Adjustment of Dents of an Individual With Regular Income. This type of bankruptcy plan was made for a debtor who has a source of income which is regular in nature. This type of bankruptcy plan is much desirable than a chapter 7 bankruptcy because it allows the debtor to retain ownership of a valuable property such as a house, also the plan permits the debtor to formulate a repayment scheme to pay his debts in a three to five year time frame.
This chapter is used mostly by individual debtors who are not qualified for a chapter 7 relief. Suring a confirmation hearing, the debtor’s repayment scheme must abide by the bankruptcy code’s requirements of confirmation in order to get approval from the court.
Among the many differences of chapter 13 bankruptcy plan with chapter 7 is that the debtor retains authority over his properties and pay his creditors basing on his estimated future income, with the help of an appointed trustee. Unlike in chapter 7 the debtor is right away discharged from his debts, but in chapter 13 the debtor needs to wholly pay the sum needed in his repayment scheme before receiving a discharge.
Likewise, the debtor is exempted and protrected from garnishments, lawsuits and other credit related actions while the plan is ongoing. Plus, the discharge given to a chapter 13 bankruptcy than in chapter 7, wherein more debts have the possibility of being eliminated.
Chapter 11
This is known as the reorganization. It is usually used by business enterprises that wants to continue running its business while at the same time paying its creditors with the help of an approved by the court of plan of reorganization. Under the chapter 11 bankruptcy plans, the debtor almost always has the select right to report a proposal of reorganization within the first 4 months from the date of case filing. The business must further give its creditors a disclosure announcement that has all the information necessary for the creditors to assess the businesses’ repayment scheme.
Finally, the ultimate decision lies on the court whether to approve or disapprove the plan or reorganization. In the confirmed plan, the nonpayer can minimize its debts by only repaying a part of its loans and releasing other debts. Other things that a debtor can do are to recover assets, end oppressive leases and contracts plus rescaling of operations in order to increase profitability.
Under this bankruptcy plan, a debtor usually goes through a process of consolidation and in the end come out with fewer obligations and a business that is reorganized.
Chapter 12
This is known as the Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income. This type of bankruptcy gives debt relief to family fishermen and farmers with a recurring income. The process under this chapter is nearly the same with the chapter 13, wherein the debtor recommends a scheme to pay his debts spread over a fixed time period, usually 3 years. However, there are cases where the court gives a longer term but normally does not exceed five years.
An appointed trustee is also allocated to the debtor, whose responsibilities are nearly the same with a chapter 13 trustee, wherein the trustee is tasked to disburse payment to the creditors of the farmer or fisherman. In chapter 12 plan, the fisherman or farmer is allowed to continue running his business while the repayment plan is still ongoing.
Chapter 9
This is known as the Adjustment of Debts of a Municipality. This bankruptcy plan affords reorganization for a municipality which can include counties, school districts, towns, municipal utilities, cities and taxing districts. This chapter is quite similar to the reorganization under chapter 11.
