| 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.
|
|
|
|
We are a debt relief agency. We help people file for bankruptcy relief under the
bankruptcy code. This Web Site is designed for general information only. The information
presented at this site should not be construed to be formal legal advice nor the
formation of a lawyer/client relationship |
|
|
|
|
|
OUR SERVICES
|
 |
Free Consultation |
|
|
Weekend Appointments
|
|
|
Home Visits |
|
|
Payment Plans |
|
|
HOURS OF OPERATIONS |
|
Monday - Friday |
|
9:00 a.m. - 9:00 p.m. |
|
Saturday & Sunday By Appointment Only |
|
Most Major Credit Cards Accepted |
|
|
|
|
