How does the bankruptcy law work?
All the processes concerning bankruptcy are governed by the United States Constitution. The specialties are placed in Article 1, Section 8, Clause 4. These regulations have been used since 1801 by the US Congress, however after the reform in 1978 some of the rules have changed. The new laws received the name of Bankruptcy Code and are mostly active nowadays. The newest edition is the well-known BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) from 2005. The main feature of the edition was to prevent citizens from using bankruptcy as the way to slip out of debts without paying them.
Title 11, which is used in bankruptcy cases contains 9 chapters for different cases. There were more chapters before, yet now only these nine are in use. They are:
* Chapter 1 - General Provisions
* Chapter 3 - Case Administration
* Chapter 5 - Creditors, the Debtor and the Estate
* Chapter 7 - Liquidation
* Chapter 9 - Adjustment of Debts of a Municipality
* Chapter 11 - Reorganization
* Chapter 12 - Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income
* Chapter 13 - Adjustment of Debts of an Individual with Regular Income
* Chapter 15 - Ancillary and Other Cross-Border Cases
The main feature of any bankruptcy law is to help people why are no more able to pay their debts to get back to adequate life by offering the set of options to solve their problem. They offer the protection against creditors and collectors as well as give the reasonable repayment plan.
The most often used chapters are chapter 7, 11 and 13.
Chapter 7 offers the totally liquidation of all debts. It allows closing all the debts in the shortest time possible (about 6 months). On the other hand the debtor will lose most of his valuable property to cover the debt.
Chapter 11 is used for reorganizing the debts. The person is still in business, but some part of the income goes into the pocket of the creditor.
Chapter 13 allows the debtor to remain with his property. Still he has to pay money monthly in order to close the debts. It usually takes for up to 5 years.
Special features of bankruptcy law in USA
Bankruptcy: voluntary or not?
If the case is voluntary, the person craves for the bankruptcy and is ready to file for it and makes the petition to the court. On the other hand if the debtor is forced into bankruptcy by his creditors, he will not pay for the court process.
The estate will most likely be the point of interest for the creditor since he can take it away in order to cover the debts. The possibilities of actually taking it depend on the Chapter filing.
The subject-matter jurisdiction is responsible for most of the bankruptcy matters in US. In some districts people tend to turn to the special Bankruptcy Court.
United States Trustee
Each trustee working with bankruptcy cases is supervised by the Attorney General. These people administrate the bankruptcy cases and act according to the federal and local laws.
The Automatic Stay
This feature prevents the creditors from taking any steps against the debtor after he filed for bankruptcy. At this time the creditor can’t go on trying to possess the debtor’s property.
The debtors themselves or their trusties are able to reject or avoid any action, which is meant to possess the debtor’s property in the stated period before the person files for bankruptcy. It’s made for the person to have enough time to gather the requested information for the correct filing.
This is the law securing the debtor from losing the property with any kind of drastic consequences. There are cases when the house can be given away generally, but practically the person doesn’t have enough income to find any other place to life.
If the creditor is secured, he can actually look for the property of the debtor, since the given credit is secured against most of limitations. Still most of the creditors are unsecured in general or in the priority.
The contacts of both parties are considered to be executor before both creditor and debtor have offered all the documents for the case. If the contract if rejected (usually ion case of Chapter 11), the contracts are considered to be the unsecured claim.
They are appointed to the court in case the Chapter 7, 9 or 11 takes place. They are able to communicate with both debtor and creditor.
All the property of the debtor that is not excluded by the Bankruptcy Code becomes the property of the estate, which is free to sell it and pay the earned money off to the creditor.
This trust is the part of the debtor’s property that is not meant to be shared. This means that though the property takes place in the whole negotiation, it doesn’t appear to be the property of bankruptcy estate.
The property of the debtor might be redeemed under the section 522 or be abandoned by the trustee according to the section 554.
The whole concept here is the ability to get the fresh start after the bankruptcy case. It’s meant to encourage lenders to offer the credits to the once bankrupting debtors for their financial life to go on.
Entities that can’t be debtors
There are certain institutions which are not allowed to become debtors. These are the banks, insurance companies, railroads and some of the financial institutions. They can also appear to be in debt, still they will never be called bankrupts but will receive the status “in liquidation”, “insolvent” etc.
The liabilities in bankruptcy which are the defined benefits
For the list of corporations the state usually offers the special conditions for coping with the bankruptcy. Still the debt shall be 1 million dollars or more.