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Bankruptcy
law provides for the development of a plan that allows a
debtor, who is unable to pay his creditors, to resolve his
debts through the division of his assets among his
creditors. This supervised division also allows the
interests of all creditors to be treated with some measure
of equality. Certain bankruptcy proceedings allow a debtor
to stay in business using revenue that continues to be
generated to resolve his debts. An additional purpose of
bankruptcy law is to allow certain debtors to free
themselves (to be discharged) of the financial obligations
they have accumulated, after their assets are distributed,
even if their debts have not been paid in full.
Bankruptcy
law is federal statutory law contained in Title
11 of the United States Code. Congress passed the
Bankruptcy Code under its Constitutional grant of authority
to "establish. . . uniform laws on the subject of
Bankruptcy throughout the United States." See U.S.
Constitution Article I, Section 8. States may not
regulate bankruptcy though they may pass laws that govern
other aspects of the debtor-creditor relationship. See
Debtor-Creditor.
A number of sections of Title 11 incorporate the
debtor-creditor law of the individual states.
Bankruptcy
proceedings are supervised by and litigated in the United
States Bankruptcy Courts. These courts are a part of the
District Courts of The United States. The United States
Trustees were established by Congress to handle many of the
supervisory and administrative duties of bankruptcy
proceedings. Proceedings in bankruptcy courts are governed
by the Bankruptcy Rules which were promulgated by the
Supreme Court under the authority of Congress.
There
are two basic types of Bankruptcy proceedings. A filing
under Chapter 7 is called liquidation. It is the most common
type of bankruptcy proceeding. Liquidation involves the
appointment of a trustee who collects the non-exempt
property of the debtor, sells it and distributes the
proceeds to the creditors. Under Chapters 11, 12, and 13 a
bankruptcy proceeding involves the rehabilitation of the
debtor to allow him to use his future earnings to pay off
his creditors. Under Chapter 7, 12, 13, and some 11
proceedings a trustee is appointed to supervise the assets
of the debtor. A bankruptcy proceeding can either be entered
into voluntarily by a debtor or initiated by his creditors.
After a bankruptcy proceeding is filed, for the most part,
creditors may not seek to collect their debts outside of the
proceeding. The debtor is not allowed to transfer property
that has been declared part of the estate subject to the
proceedings. Furthermore, certain pre-proceeding transfers
of property, secured interests, and liens may be delayed or
invalidated. Various provisions of the Bankruptcy Code also
establish the priority of creditors' interests. |
