The Bankruptcy Process In United States
The United States Constitution, Article I, Section 8, requires the Congress to enact uniform Laws on the subject of Bankruptcies throughout the United States. The Congress has done this by enacting The Bankruptcy Code, which is located in title 11 of the United States Code,. This uniform code governs all the bankruptcy cases in United States.
The Bankruptcy Code and Federal Rules of Bankruptcy Procedure contains the legal procedures that deal with the whole bankruptcy process .
Each of the ninety odd judicial districts of the country has a bankruptcy court. Bankruptcy cases are never handled by state courts. A bankruptcy judge presides over the court and is empowered to decide any matter connected the case, from eligibility to file to whether a debtor receives a discharge of debts.
In most cases the process involves administrative action away from the court itself which are carried out by a court appointed trustee.
There are several basic types bankruptcy cases under the Bankruptcy Code, normally identified by the chapters in the code that describe them.
Chapter 7
This is the most common type of case. These mostly involve individual debtors. Usually the trustee takes over the debtor’s estate, liquidate it and then distribute the proceeds to the creditors. These cases are sometimes called liquidation or non asset cases. The debtor can normally expect to receive a discharge a few months after the bankruptcy petition is filed.
Chapter 9
Formally called Adjustment of Debts of a Municipality, these involve insolvent cities, towns, counties, municipal utilities, taxing districts, and school districts. The reorganization this entail is rather similar to Chapter 11.
Chapters 11
This type of case is called a Reorganization. It allows the debtor (usually a commercial entity) concerned to continue and reorganize their business and repay the creditors according to a court approved plan.
Chapter 12
This chapter is called Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, it allows the debtor to propose a plan of repayment lasting no longer than three years or if approved by court to up to five years. Main aim to give debt relief to framers and fishermen. This is very similar to chapter 13.
Chapter 13
This chapter is called Adjustment of Debts of an Individual With Regular Income, and is aimed at insolvent individual debtors who have a regular income. It allows the debtor to propose a repayment plan to repay creditors through a trustee over the course of three to five years. The court approves the plan at a confirmation hearing. The advantage of this over chapter 7 is that debtor is allowed to keep property. Debtor is discharged only on completion of the plan. However, he is protected from any other creditor action as long as the plan is effective.
Chapter 15
This chapter deals with insolvent foreign companies with US debts. Courts in deciding these cases have two main aims in mind namely, to to give an honest debtor a
“fresh start” in life unburdened with debts, and to repay creditors to the extent that the debtor has property available, in an orderly manner.
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