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BankruptcyBankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in the overwhelming majority of cases, the bankruptcy is initiated by the bankrupt individual or organization.
Bankruptcy jurisdictionBankruptcy in the United States is a matter placed under U.S. federal jurisdiction by the Constitution (in Article 1, Section 8), which allows Congress to enact "uniform laws on the subject of Bankruptcy throughout the United States." Its implementation, however, is found in statute law. The relevant statutes are incorporated within the Bankruptcy Code, located at Title 11 of the United States Code, and amplified by state law in the many places where Federal law either fails to speak or defers expressly to state law. While bankruptcy cases are always filed in U.S. Bankruptcy Court (an adjunct to the U.S. District Courts, bankruptcy cases, particularly with respect to the validity of claims and exemptions, are often highly dependent upon State law. State law therefore plays a major role in many bankruptcy cases, and it is often quite unwise to generalize bankruptcy issues across state lines. Bankruptcy chaptersThere are six types of bankruptcy under the bankruptcy code, located at Title 11 of the United States:
The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 7Chapter 7 personal bankruptcy is also known as straight bankruptcy, or liquidation bankruptcy. Under Chapter 7, debtors give up certain property that they own when they go bankrupt. The property is sold, and the proceeds are used to pay the creditors. In most cases debtors have few if any non-exempt assets, and thus in most cases they do not lose anything. In most Chapter 7 cases most debts are discharged about 90 days after filing. Debts that are discharged (which means they go away) include credit card debts. Debts that are not discharged would include child support payments and some taxes and student loans. Secured debts, such as car loans and house mortgages, are also not discharged. Under the new rules implemented as a result of the 2005 Bankruptcy Reform, it is now more difficult to qualify for Chapter 7 bankruptcy. Debtors are subject to a means test, and if income exceeds limits set by the government, the debtor must file under Chapter 13. Chapter 13Chapter 13 bankruptcy is a reorganization plan for individuals. To qualify for Chapter 13, an individual must have secured and unsecured debts under a certain amount. Under Chapter 13 the debtor keeps all of their property, but in return they make regular payments to a trustee, who distributes the payments to the creditors. Most Chapter 13 plans last for three to five years, and then the remaining unpaid and eligible debts are discharged. The types of debt that can be discharged under Chapter 13 was substantially scaled back by the 2005 reform amendments. Creditors may challenge a Chapter 13 plan but a plan can still be confirmed over their objection if the criteria for confirmation is otherwise met. A requirement for confirmation of a Chapter 13 plan is that unsecured creditors would receive at least as much as they would receive in a Chapter 7 liquidation. SourcesExternal linksSee AlsoCreator
This page was created on Apr 11, 2006 |
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