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The Process
Article I, Section 8, of the United States Constitution authorizes Congress to enact
"uniform Laws on the subject of Bankruptcies." Under this grant of authority, Congress
enacted the "Bankruptcy Code" in 1978. The Bankruptcy Code, which is codified as title
11 of the United States Code, has been amended several times since its enactment. It
is the uniform federal law that governs all bankruptcy cases.
The procedural aspects of the bankruptcy process are governed by the Federal Rules of
Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each
bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in
bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set
forth the formal legal procedures for dealing with the debt problems of individuals and
businesses.
There is a bankruptcy court for each judicial district in the country. Each state has one or
more districts. There are 90 bankruptcy districts across the country. The bankruptcy
courts generally have their own clerk's offices.
The court official with decision-making power over federal bankruptcy cases is the
United States bankruptcy judge, a judicial officer of the United States district court. The
bankruptcy judge may decide any matter connected with a bankruptcy case, such as
eligibility to file or whether a debtor should receive a discharge of debts. Much of the
bankruptcy process is administrative, however, and is conducted away from the
courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases,
this administrative process is carried out by a trustee who is appointed to oversee the
case.
A debtor's involvement with the bankruptcy judge is usually very limited. A typical chapter
7 debtor will not appear in court and will not see the bankruptcy judge unless an
objection is raised in the case. A chapter 13 debtor may only have to appear before the
bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at
which a debtor must appear is the meeting of creditors, which is usually held at the
offices of the U.S. trustee. This meeting is informally called a "341 meeting" because
section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that
creditors can question the debtor about debts and property.
A fundamental goal of the federal bankruptcy laws enacted by Congress is to give
debtors a financial "fresh start" from burdensome debts. The Supreme Court made this
point about the purpose of the bankruptcy law in a 1934 decision:
[I]t 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.
Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through
the bankruptcy discharge, which releases debtors from personal liability from specific
debts and prohibits creditors from ever taking any action against the debtor to collect
those debts. This publication describes the bankruptcy discharge in a question and
answer format, discussing the timing of the discharge, the scope of the discharge (what
debts are discharged and what debts are not discharged), objections to discharge, and
revocation of the discharge. It also describes what a debtor can do if a creditor attempts
to collect a discharged debt after the bankruptcy case is concluded.
Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, each of
which is discussed in this publication. The cases are traditionally given the names of
the chapters that describe them.
Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by
which a trustee takes over the assets of the debtor's estate, reduces them to cash, and
makes distributions to creditors, subject to the debtor's right to retain certain exempt
property and the rights of secured creditors. Because there is usually little or no
nonexempt property in most chapter 7 cases, there may not be an actual liquidation of
the debtor's assets. These cases are called "no-asset cases." A creditor holding an
unsecured claim will get a distribution from the bankruptcy estate only if the case is an
asset case and the creditor files a proof of claim with the bankruptcy court. In most
chapter 7 cases, if the debtor is an individual, he or she receives a discharge that
releases him or her from personal liability for certain dischargeable debts. The debtor
normally receives a discharge just a few months after the petition is filed. Amendments
to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 require the application of a "means test" to determine whether
individual consumer debtors qualify for relief under chapter 7. If such a debtor's income
is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.
Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is
designed for an individual debtor who has a regular source of income. Chapter 13 is
often preferable to chapter 7 because it enables the debtor to keep a valuable asset,
such as a house, and because it allows the debtor to propose a "plan" to repay
creditors over time – usually three to five years. Chapter 13 is also used by consumer
debtors who do not qualify for chapter 7 relief under the means test. At a confirmation
hearing, the court either approves or disapproves the debtor's repayment plan,
depending on whether it meets the Bankruptcy Code's requirements for confirmation
Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains
in possession of the property of the estate and makes payments to creditors, through
the trustee, based on the debtor's anticipated income over the life of the plan. Unlike
chapter 7, the debtor does not receive an immediate discharge of debts. The debtor
must complete the payments required under the plan before the discharge is received.
The debtor is protected from lawsuits, garnishments, and other creditor actions while
the plan is in effect. The discharge is also somewhat broader (i.e., more debts are
eliminated) under chapter 13 than the discharge under chapter 7.
Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that
desire to continue operating a business and repay creditors concurrently through a
court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive
right to file a plan of reorganization for the first 120 days after it files the case and must
provide creditors with a disclosure statement containing information adequate to
enable creditors to evaluate the plan. The court ultimately approves (confirms) or
disapproves the plan of reorganization. Under the confirmed plan, the debtor can
reduce its debts by repaying a portion of its obligations and discharging others. The
debtor can also terminate burdensome contracts and leases, recover assets, and
rescale its operations in order to return to profitability. Under chapter 11, the debtor
normally goes through a period of consolidation and emerges with a reduced debt load
and a reorganized business.
Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular
Annual Income, provides debt relief to family farmers and fishermen with regular
income. The process under chapter 12 is very similar to that of chapter 13, under which
the debtor proposes a plan to repay debts over a period of time – no more than three
years unless the court approves a longer period, not exceeding five years. There is also
a trustee in every chapter 12 case whose duties are very similar to those of a chapter 13
trustee. The chapter 12 trustee's disbursement of payments to creditors under a
confirmed plan parallels the procedure under chapter 13. Chapter 12 allows a family
farmer or fisherman to continue to operate the business while the plan is being carried
out.
Chapter 9, entitled Adjustment of Debts of a Municipality, provides essentially for
reorganization, much like a reorganization under chapter 11. Only a "municipality" may
file under chapter 9, which includes cities and towns, as well as villages, counties,
taxing districts, municipal utilities, and school districts.
The purpose of Chapter 15, entitled Ancillary and Other Cross-Border Cases, is to
provide an effective mechanism for dealing with cases of cross-border insolvency. This
publication discusses the applicability of Chapter 15 where a debtor or its property is
subject to the laws of the United States and one or more foreign countries.
In addition to the basic types of bankruptcy cases, Bankruptcy Basics provides an
overview of the Servicemembers' Civil Relief Act, which, among other things, provides
protection to members of the military against the entry of default judgments and gives
the court the ability to stay proceedings against military debtors.
This publication also contains a description of liquidation proceedings under the
Securities Investor Protection Act ("SIPA"). Although the Bankruptcy Code provides for a
stockbroker liquidation proceeding, it is far more likely that a failing brokerage firm will
find itself involved in a SIPA proceeding. The purpose of SIPA is to return to investors
securities and cash left with failed brokerages. Since being established by Congress in
1970, the Securities Investor Protection Corporation has protected investors who
deposit stocks and bonds with brokerage firms by ensuring that every customer's
property is protected, up to $500,000 per customer.
The bankruptcy process is complex and relies on legal concepts like the "automatic
stay," "discharge," "exemptions," and "assume." Therefore, the final chapter of this
publication is a glossary of Bankruptcy Terminology which explains, in layman's terms,
most of the legal concepts that apply in cases filed under the Bankruptcy Code.
"uniform Laws on the subject of Bankruptcies." Under this grant of authority, Congress
enacted the "Bankruptcy Code" in 1978. The Bankruptcy Code, which is codified as title
11 of the United States Code, has been amended several times since its enactment. It
is the uniform federal law that governs all bankruptcy cases.
The procedural aspects of the bankruptcy process are governed by the Federal Rules of
Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each
bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in
bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set
forth the formal legal procedures for dealing with the debt problems of individuals and
businesses.
There is a bankruptcy court for each judicial district in the country. Each state has one or
more districts. There are 90 bankruptcy districts across the country. The bankruptcy
courts generally have their own clerk's offices.
The court official with decision-making power over federal bankruptcy cases is the
United States bankruptcy judge, a judicial officer of the United States district court. The
bankruptcy judge may decide any matter connected with a bankruptcy case, such as
eligibility to file or whether a debtor should receive a discharge of debts. Much of the
bankruptcy process is administrative, however, and is conducted away from the
courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases,
this administrative process is carried out by a trustee who is appointed to oversee the
case.
A debtor's involvement with the bankruptcy judge is usually very limited. A typical chapter
7 debtor will not appear in court and will not see the bankruptcy judge unless an
objection is raised in the case. A chapter 13 debtor may only have to appear before the
bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at
which a debtor must appear is the meeting of creditors, which is usually held at the
offices of the U.S. trustee. This meeting is informally called a "341 meeting" because
section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that
creditors can question the debtor about debts and property.
A fundamental goal of the federal bankruptcy laws enacted by Congress is to give
debtors a financial "fresh start" from burdensome debts. The Supreme Court made this
point about the purpose of the bankruptcy law in a 1934 decision:
[I]t 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.
Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through
the bankruptcy discharge, which releases debtors from personal liability from specific
debts and prohibits creditors from ever taking any action against the debtor to collect
those debts. This publication describes the bankruptcy discharge in a question and
answer format, discussing the timing of the discharge, the scope of the discharge (what
debts are discharged and what debts are not discharged), objections to discharge, and
revocation of the discharge. It also describes what a debtor can do if a creditor attempts
to collect a discharged debt after the bankruptcy case is concluded.
Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, each of
which is discussed in this publication. The cases are traditionally given the names of
the chapters that describe them.
Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by
which a trustee takes over the assets of the debtor's estate, reduces them to cash, and
makes distributions to creditors, subject to the debtor's right to retain certain exempt
property and the rights of secured creditors. Because there is usually little or no
nonexempt property in most chapter 7 cases, there may not be an actual liquidation of
the debtor's assets. These cases are called "no-asset cases." A creditor holding an
unsecured claim will get a distribution from the bankruptcy estate only if the case is an
asset case and the creditor files a proof of claim with the bankruptcy court. In most
chapter 7 cases, if the debtor is an individual, he or she receives a discharge that
releases him or her from personal liability for certain dischargeable debts. The debtor
normally receives a discharge just a few months after the petition is filed. Amendments
to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 require the application of a "means test" to determine whether
individual consumer debtors qualify for relief under chapter 7. If such a debtor's income
is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.
Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is
designed for an individual debtor who has a regular source of income. Chapter 13 is
often preferable to chapter 7 because it enables the debtor to keep a valuable asset,
such as a house, and because it allows the debtor to propose a "plan" to repay
creditors over time – usually three to five years. Chapter 13 is also used by consumer
debtors who do not qualify for chapter 7 relief under the means test. At a confirmation
hearing, the court either approves or disapproves the debtor's repayment plan,
depending on whether it meets the Bankruptcy Code's requirements for confirmation
Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains
in possession of the property of the estate and makes payments to creditors, through
the trustee, based on the debtor's anticipated income over the life of the plan. Unlike
chapter 7, the debtor does not receive an immediate discharge of debts. The debtor
must complete the payments required under the plan before the discharge is received.
The debtor is protected from lawsuits, garnishments, and other creditor actions while
the plan is in effect. The discharge is also somewhat broader (i.e., more debts are
eliminated) under chapter 13 than the discharge under chapter 7.
Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that
desire to continue operating a business and repay creditors concurrently through a
court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive
right to file a plan of reorganization for the first 120 days after it files the case and must
provide creditors with a disclosure statement containing information adequate to
enable creditors to evaluate the plan. The court ultimately approves (confirms) or
disapproves the plan of reorganization. Under the confirmed plan, the debtor can
reduce its debts by repaying a portion of its obligations and discharging others. The
debtor can also terminate burdensome contracts and leases, recover assets, and
rescale its operations in order to return to profitability. Under chapter 11, the debtor
normally goes through a period of consolidation and emerges with a reduced debt load
and a reorganized business.
Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular
Annual Income, provides debt relief to family farmers and fishermen with regular
income. The process under chapter 12 is very similar to that of chapter 13, under which
the debtor proposes a plan to repay debts over a period of time – no more than three
years unless the court approves a longer period, not exceeding five years. There is also
a trustee in every chapter 12 case whose duties are very similar to those of a chapter 13
trustee. The chapter 12 trustee's disbursement of payments to creditors under a
confirmed plan parallels the procedure under chapter 13. Chapter 12 allows a family
farmer or fisherman to continue to operate the business while the plan is being carried
out.
Chapter 9, entitled Adjustment of Debts of a Municipality, provides essentially for
reorganization, much like a reorganization under chapter 11. Only a "municipality" may
file under chapter 9, which includes cities and towns, as well as villages, counties,
taxing districts, municipal utilities, and school districts.
The purpose of Chapter 15, entitled Ancillary and Other Cross-Border Cases, is to
provide an effective mechanism for dealing with cases of cross-border insolvency. This
publication discusses the applicability of Chapter 15 where a debtor or its property is
subject to the laws of the United States and one or more foreign countries.
In addition to the basic types of bankruptcy cases, Bankruptcy Basics provides an
overview of the Servicemembers' Civil Relief Act, which, among other things, provides
protection to members of the military against the entry of default judgments and gives
the court the ability to stay proceedings against military debtors.
This publication also contains a description of liquidation proceedings under the
Securities Investor Protection Act ("SIPA"). Although the Bankruptcy Code provides for a
stockbroker liquidation proceeding, it is far more likely that a failing brokerage firm will
find itself involved in a SIPA proceeding. The purpose of SIPA is to return to investors
securities and cash left with failed brokerages. Since being established by Congress in
1970, the Securities Investor Protection Corporation has protected investors who
deposit stocks and bonds with brokerage firms by ensuring that every customer's
property is protected, up to $500,000 per customer.
The bankruptcy process is complex and relies on legal concepts like the "automatic
stay," "discharge," "exemptions," and "assume." Therefore, the final chapter of this
publication is a glossary of Bankruptcy Terminology which explains, in layman's terms,
most of the legal concepts that apply in cases filed under the Bankruptcy Code.
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opportunity that has changed
their life.
If you would like to be one of
these people call the # below
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