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Bankruptcy Law Overview

Bankruptcy is a federal law based judicial course of action by which a debtor can acquire reprieve order or discharge order from his/her debts. This liberation from debt may come in different ways and forms, which may vary from total discharge of the burden of debts to obligation of any payment program consistent with the debtor’s financial condition.

The principal goal of federal bankruptcy law is to give debtors a financial “fresh start” from gruesome burden of debts.

Section 8 of Article I of the United States Constitution directs the government “to establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States”. In furtherance of this Constitutional mandate the Congress has enacted the Bankruptcy Reform Act Of 1978. Each and every case filed after October 1st, 1979 are governed by this Act. Presently the US “Bankruptcy Code”, which is codified as title 11 of the United States Code has been amended several times since its enactment, most recently with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The Federal Rules of Bankruptcy Procedure (Usually known as “Bankruptcy Rules”) and local rules of each bankruptcy court set the rules for the procedural parts of the system for the bankruptcy filings. The Bankruptcy Rules gives the formats of the legal forms required to be used in the bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules and the Set of Local Rules are all harmoniously synchronized to assemble Official Legal Procedures for handling the personal as well as the commercial bankruptcy filings.

Each state has one or more judicial district and each judicial district has one bankruptcy court each. There are 90 bankruptcy districts across the country. Usually the bankruptcy courts have their own clerical offices.

United States bankruptcy judge holds the decision making power on the bankruptcy cases who is a judicial officer of the United States district court. A bankruptcy judge may decide on any issue associated with a bankruptcy case (issue of eligibility to file, grant of discharge etc.)

Though it is a court-based process much of the procedure are carried on through administrative machinery i.e., by an officially appointed trustee to oversee the whole process of collecting the non-exempt property of the debtor, selling it and distributing the proceeds to the creditors. The debtor’s appearance in the total process is only required officially in a meeting unofficially known as "creditor's meeting" or “341 Meeting or Hearing” because section 341 of the Bankruptcy Code which entail that the debtor should be present at this meeting so that the creditors can make essential inquiry to the debtor about their debts and possessions.

Six types of Bankruptcies are mentioned in the U.S. Bankruptcy Code and it has now become a custom to call them by the names of the chapters that describe them:

CHAPTER 7 BANKRUPTCY: - Straight Bankruptcy/ Liquidation

Chapter 7 bankruptcy or the liquidation bankruptcy is a federal legal course of action through which debtors (individuals, married couples, corporations or partnerships) become capable to eradicate most types of unsecured outstanding debts like credit card debts, medical & legal bills etc to get a fresh start.

CHAPTER 9 BANKRUPTCY: - Reorganization of Municipalities

Chapter 9 has been chiefly designed for the municipalities. This entitles the municipalities to restructure their financial matters and properly reorganize them. But Chapter 9 bankruptcy filing is a rare incidence which occurs.

CHAPTER 11 BANKRUPTCY: - Business Reorganization

Chapter 11 is a federal course of action to reorganize fiscal affairs of business houses to plan a schedule for their effective repayment plan either partially or in full. Chapter 11 can be said as an economic repayment plan of business houses.

CHAPTER 12 BANKRUPTCY: - Family Farming & Fishing Business Reorganization

Chapter 12 is the plan regarding adjustments of debts of the “family farmer,” or a “family fisherman” as defined in the Bankruptcy law

CHAPTER 13 BANKRUPTCY: - Adjustment of an Individual's Debts

Chapter 13 Bankruptcy or the wage earners bankruptcy or the reorganization or repayment bankruptcy is a federal legal course of action in which a debtor became eligible to pay back his/her outstanding debts through a repayment schedule of approx 3/5 years term.

CHAPTER 15 BANKRUPTCY: - Insolvency Cases Involving Other Countries

Chapter 15 Bankruptcy deals with cross border insolvency cases. It mainly deals with organizations which work on multinational operation.