A fundamental objective of federal bankruptcy laws enacted by Congress is to give debtors a new financial start from onerous debts.
bankruptcy law provides for the
reduction or elimination of certain debts and may provide a schedule for the repayment of unliquidable debts over time. It also allows individuals and organizations to pay back guaranteed debt. Secured debt is generally a debt with real property or personal property, such as vehicles pledged as security, often on more favorable terms for the debtor.Bankruptcy law has two central objectives. First, bankruptcy law seeks to free debtors from certain obligations they cannot pay by providing them with a “fresh start” from financial difficulties. At the same time, bankruptcy law seeks to preserve the compensatory interests of creditors and other interested parties by maximizing the total return of creditors in an orderly and efficient manner. Congress and the courts have established a complex system of statutes, procedural rules and judicial precedents aimed at balancing these competing interests.
Various types of debtors, from individual consumers with modest incomes to larger multinational companies, may struggle to pay their debts. To accommodate the different needs of such debtors, the Bankruptcy Code, which is the primary source of bankruptcy law in the United States, contains a variety of “chapters” that create several different forms of bankruptcy proceedings. While the ultimate goal of each of these proceedings is to balance the conflicting interests of debtors, creditors, and other interested parties, each Chapter has its own procedures, eligibility requirements and forms of relief. While some chapters are intended to liquidate the debtor, others try to reorganize the debtor so that it can continue to operate as a going concern, while others adjust the debtor's debts.
This report serves as a guide for members and their staff on the basics of EE. UU. The report provides a brief description of the most essential concepts necessary for an informed understanding of the U.S. Bankruptcy system, including the competing policies underlying the Bankruptcy Code; The organization of the Bankruptcy Code; The key players in a bankruptcy proceeding; The initiation of a bankruptcy case; The “automatic suspension of creditors' actions against the debtor; The various types of procedures established by different chapters of the Bankruptcy Code, as well as the differences between those procedures; and the U.S.
First, bankruptcy law seeks to free debtors from certain obligations they cannot pay, offering them a fresh start from financial difficulties. To accommodate the different needs of such debtors, the Bankruptcy Code, which is the primary source of bankruptcy law in the United States, contains a variety of chapters that create several different forms of bankruptcy proceedings. The Constitution gives Congress the authority to establish. Uniform laws on the subject of bankruptcy in the United States.
The Bankruptcy Code generally attempts to balance two competing political concerns. 4.On the one hand, bankruptcy aims to give honest debtors a fresh start, that is, to grant debtors relief from certain debts they cannot repay so that they can reorder their affairs, make peace with their creditors, and enjoy “a new chance in life with a clear field for future endeavor, without obstacles. because of the pressure and discouragement of pre-existing debt. Consequently, this report provides guidance for members and their staff on the basics of EE.
Thus, the report provides an overview14 of the most essential concepts needed for an informed understanding of the U.S. Bankruptcy System, including As noted above, the Bankruptcy Code is the primary source of bankruptcy law in the United States. 15 The Bankruptcy Code is codified in Title 11 of the United States Code and is divided into nine distinct chapters. However, the Bankruptcy Code is not the only source in the U.S.
On the one hand, the Federal Rules of Bankruptcy Procedure21, which are rules enacted by the United States,. Supreme Court (on the recommendation of the United States,. The Judicial Conference and its committees (and with the consent of Congress) provide a substantial set of procedural rules governing bankruptcy proceedings in the United States. 22. Many courts have supplemented the Federal Rules of Bankruptcy Procedure by enacting their own local rules and procedural orders.
which govern bankruptcy cases in their respective districts, 23 The United States Judicial Conference has also enacted official bankruptcy forms that litigants must use as templates when filing certain types of documents in a bankruptcy case, 24 Other federal laws may also affect bankruptcy cases. The Constitution restricts the types of issues that a bankruptcy judge can resolve.25 In addition, certain sections of the Bankruptcy Code. Expressly incorporate state law, which is often different from state to state. Perhaps the most important participants are the debtor (who seeks relief from debts they cannot pay), 29 and creditors (who seek to quickly and efficiently collect as much of their debts as possible).
This report analyzes the respective functions of the case manager in each chapter below, 48 A debtor can file for bankruptcy by filing a document known as a bankruptcy petition with the bankruptcy court clerk, 49 In addition to the petition, most of the 50 debtors must also submit a list of debtor assets and liabilities; 51 a list of the debtor's current income and expenses; 52 a statement of the debtor's financial affairs; 53 and other required documents, 54 These filing requirements are carefully designed to obtain certain information necessary for the proper administration and award of the case 55 and to ensure that the debtor's creditors have adequate information to facilitate the fair and efficient distribution of the debtor's income or assets 56 Depending on the debtor's financial situation, the debtor may also be required to pay a filing fee, 57 Filing a petition in the event of bankruptcy the court creates a bankruptcy estate 58 which, with certain exceptions,59 consists of the debtor's assets at the beginning of the case. Perhaps most important69 filing a bankruptcy petition suspends the commencement or continuation of all non-bankruptcy court proceedings against the debtor; 70 prevents creditors from taking any action to collect, evaluate, or recover a claim against the debtor that arose before the opening of the case 71; and , with certain exceptions,72 prohibits creditors from taking almost any action against the debtor or the assets of the estate. For example, by rescinding, annulling, modifying or conditioning the stay so that the creditor can take the requested measure, 84 The court may grant an exemption from automatic suspension for just cause, 85, as may exist when difficulties for the plaintiff resulting from the enforcement of the automatic stay overcome difficulties for the debtor if the automatic suspension were lifted86 or when the debtor filed for bankruptcy in bad faith only to avoid imminent foreclosure 87. Alternatively, the court may also award compensation with respect to the suspension of an act against property if the debtor does not have a share capital in those assets and those assets are not necessary for an effective reorganization of the debtor 88 As a result, a creditor can, for example, successfully obtain an exemption from automatic stay when the debtor has not paid the mortgage in a timely manner 89 The probability that a bankruptcy court will grant one of the parties The exemption from automatic stay varies depending on the context. 90 As explained in more detail below, each of these types of procedures has different eligibility requirements, is governed by different procedures and results in different forms of redress 99. Some debtors, depending on their individual characteristics, may be eligible to file for bankruptcy under more than one Chapter and, therefore, may select the form of bankruptcy proceeding that is most advantageous in light of the debtor's particular financial circumstances, 100 Other debtors may be eligible to file a application only under a single Chapter, and must file for bankruptcy under that Chapter or not be declared at all, 101. However, other debtors may not be eligible to file for bankruptcy under any chapter of the Bankruptcy Code, 102 A liquidation proceeding under Chapter 7 is the most common form of bankruptcy in the United States, 103 According to statistics published by United States courts, approximately half a million debtors file for Chapter 7 bankruptcy every year, 104 Notable examples of companies that have filed for bankruptcy under Chapter 7 include the restaurant chain Bennigan's, 105 IndyMac Bancorp, 106 and Acclaim Entertainment (perhaps the best known) to port the video game Mortal Kombat to video game consoles (Sega Genesis and Super Nintendo).
Chapter 7 potentially allows a person who is overwhelmed by debt to obtain a “fresh start” in the form of a forgiveness of most types of debt by handing over their non-exempt property for distribution. Whose debts are primarily consumer debts qualify for the relief of Chapter 7, 113. If the debtor's current monthly income, reduced by certain allowable expenses, exceeds the legal thresholds established by the Bankruptcy Code, then the bankruptcy court must dismiss the Chapter 7 case or convert the case to a debt adjustment procedure under Chapter 13.114 The primary purpose of the Chapter 7 media test is to transfer consumer debtors to Chapter 13 of the Bankruptcy Code, which this report analyzes in more detail below.115 when those debtors can pay part or all of their debts in a plan of the Chapter 13. In other words, the continuation of the debtor's business activity will generate more value than the dismemberment and fragmentary sale of assets. In order to convert the reorganized debtor into a viable economic entity.
As to whether they should vote in favor of the plan. Those who have an amount of at least two-thirds and more than half the number of allowable claims of that kind have voted in favor of the plan, 187 On the one hand, a Chapter 11 reorganization plan cannot be confirmed unless it meets the “best interest of creditors” test. Unless the plan proposes such liquidation or reorganization. Creditors.
Comply with your obligations under your confirmed reorganization plan. In many judicial districts, the United States,. Trustee229 appoints permanent Chapter 13 trustees who oversee all Chapter 13 cases filed in their respective districts, 230 Among other obligations, 231 Chapter 13 cases are also similar to Chapter 11 cases, to the limited extent that both ideally result in confirmation of a plan that alters the debtor's relations with his creditors, 235 Among other requirements, 236 a Chapter 13 plan must propose using future income to pay part (or, in the rare case, all) of the debtor's debts over the next three to five years. As a means of facilitating international cooperation in the administration of cross-border insolvencies 288 and incorporating the Model Law on Cross-Border Insolvency.
Enacted by the United States Commission on International Trade Law. For example, a bankruptcy court may deny forgiveness to certain debtors who commit misconduct during the bankruptcy case or who do not meet certain requirements of the Bankruptcy Code, 309 A debtor who files for bankruptcy for the second time too soon after receiving a forgiveness in a previous bankruptcy case also you may not be eligible to be exonerated, 310 A protection that the Bankruptcy Code provides to the debtor against collection activities and many other actions by creditors. A set of statutes codified in 11 U, S, C. A judicial officer established under article I of the Constitution who decides on issues in cases of bankruptcy.
The representative of the bankruptcy estate, whose function and functions vary depending on the chapter of the Bankruptcy Code that the debtor has invoked. A case manager appointed to manage a case under Chapter 7 of the Bankruptcy Code is known as a Chapter 7 trustee; a case manager appointed under Chapter 13 is known as a Chapter 13 trustee, etc. Not to be confused with the United States Trustee. Property that is pledged as security against a debt.
If a proposed plan complies with the applicable provisions of the Bankruptcy Code, the bankruptcy judge can confirm it. The confirmation causes the plan to take effect and, therefore, requires. Confirmation of a plan due to the objection of certain creditors. Someone to whom the debtor owes money or who claims that the debtor owes money.
An entity that has debts to creditors and has filed a claim for compensation under the Bankruptcy Code. Relief from some or all of a debtor's debts. Forgiveness generally consists of a legal right not to pay settled debts, as well as guarantees against harassment by the creditor whose debt has been canceled. With certain exceptions, the estate consists of the debtor's assets at the beginning of the case.
The estate is created after the filing of a bankruptcy petition. It allows debtors to remove certain categories of assets from the estate and, therefore, to isolate those assets from creditors' claims. A proposal to adjust relationships between (the debtor), (the debtor's creditors) and (other) interested parties. A confirmed plan becomes a binding contract between the debtor, its creditors and other interested parties, and governs their respective rights and obligations.
A creditor who has a legal right to specific assets that the debtor has pledged as security against the debt in the event that the debtor defaults. Department of Justice that oversees bankruptcy cases in most jurisdictions. Not to be confused with the case manager. A creditor that does not acquire any right in any specific asset of the debtor in exchange for granting the credit to the debtor.
Table illustrating the differences between chapters of the Bankruptcy Code311 Certain individuals and non-individuals Certain family farmers and family fishers with regular income Certain people with regular income Adjustment of the debtor's debts Usually, reorganization of the debtor, but occasionally Does liquidation result ideally in a confirmed plan? Rarely never, and only for limited purposes Yes. Does a permanent trust debtor generally retain control of their assets and operations during the case? See below The Bankruptcy Code and other sources of the Law of. See The Key Actors in a Bankruptcy Case below and Appendix A for the definition of a debtor. For example,.
See The Key Actors in a Bankruptcy Case below and Appendix A for the definition of a creditor. In red Walker, 180 MB, R. See Pamela Kohlman Webster, The Malpractice of Health Care Bankruptcy Reform, 32 Loy. Pamela Foohey et al.
This report is not intended to provide an exhaustive treatment of all topics related to bankruptcy, and it intentionally omits more advanced concepts that are unnecessary for an elementary understanding of the bankruptcy process. Bankruptcy law in greater depth includes Henry J. Sommer & Richard Levin, Collier bankrupt (16th ed. Norton, III, Norton Bankruptcy Law & Practice (3rd ed.
Harner, The Corporate Governance and Public Policy Implications of Activist Distressed Debt Investing, 77 Fordham L. Harmon et al. Austin, Bankruptcy and the Myth of Uniform Laws, 42 Seton Hall L. Bankruptcy courts also issue orders known as “general procedural orders” or “standing orders.”.
See below The Key Actors in a Bankruptcy Case and Appendix A for the definition of a bankruptcy judge. See, for example,. The Constitution gives a bankruptcy court the authority to resolve certain matters). Ohio 200 (One of the most important policies behind resorting to bankruptcy is providing a “fresh start” for debtors.).
Weinschneider, 322 F, 3d 468, 475 (7th Cir). III, § 1 (Judges, both in the supreme and lower courts, shall hold office during their good conduct and, at the established times, shall receive compensation for their services that will not diminish during their tenure). In 469 (stating that Article III of the United States,. The Constitution prohibits bankruptcy judges from judging certain matters).
However, parties to a dispute may knowingly and voluntarily consent to a bankruptcy judge to resolve certain lawsuits that, otherwise, a bankruptcy judge would lack constitutional authority to decide. About Midway Airlines, Inc. From Am. From Cybergenics Corp's unsecured creditors.
Chinery, 330 F, 3d 548, 577 (3d Cir). See below Types of Bankruptcy Proceedings. Fed. Pongvitayapanu (in red Pongvitayapanu), 487 a.
C., R. Weldon (instead of Weldon), 184 a. C. Walsh, 246 F, 3d 233, 241 (3d Cir.
Novak (In Jackson Red), 593 F, 3d 171, 1716 (2nd Cir. Wise (In Wise Red), 346 F, 3d 1239, 1241 (10th Cir. Schramm (In Schramm Red), 431 B, R. Leetien, 309 F, 3d 1210, 1214 (9th Cir.
Brockton Credit Union (in re Soares), 107 F, 3d 969, 973 (1st Cir). In the town of Crespo (Torres), 532 MB, R. Sommer, 3 Collier bankrupt ¶ 362.03 (16th ed. Vierkant (In Vierkant), 240 MB, R.
Utah, 1998 (quoting Litton Sys). About Frigitemp Corp. Iowa (June 28, 2000) (The court finds that these. Attempts to collect a debt were violations of the automatic suspension.
United States (In re Clark), 207 BR, R. Ohio 199 (Unless a particular procedure is specifically designated, an exception to automatic suspension). Before taking any action related to the ownership of the estate. To the extent that creditors do not do so, they act at their own risk.
Maloy, Comparative Bankruptcy, 24 Suffolk Transnat'l L. For greater clarity and to more clearly illustrate the pertinent differences between the various chapters of the Bankruptcy Code, this report does not analyze these chapters in numerical order. Appendix B to this report contains a table with the most important differences between each chapter. Arthur Best, lying lawyers and reclined regulators, 49 Ind.
Accord, p. ex. Williams et al. And one of the key elements of that decision was that many of their properties needed capital expenditures to make improvements, and there was simply no money to do so.
See Chapter 13 Consumer Cases below. See Chapter 11 Reorganization below. See below Converting to another chapter. In Red Hawk, 871 F, 3d 287, 292 (5th Cir.
Raising and reducing inheritance ownership to money. Around Two Springs (Membership Club), 424 MB, R. See Maloy, note 91 above, p. 13 (A debtor prefers chapter 11 to chapter 7 when the debtor has temporary difficulties paying off debts due to cash flow problems, shrinking markets, or the like).
Under these circumstances, the debtor needs a break to get out of their financial predicament. About Kmart Corp. See below Chapter 13 Consumer Cases Chapter 13 Consumer Cases. In red Nylon Net Co.
Marvel, 140 F, 3d at 471 (quoting In King V). Savino & Heating Co oil. Lucian Arye Bebchuk & Jesse M. Fried, a New Approach to Valuing Secured Claims in the Event of Bankruptcy, 114 Harv.
Lewis, which prohibits regulatory action against Chapter 11, 96 Com debtors. The Chapter 11 debtor in an orderly manner. The bankruptcy court may, for good cause, reduce or increase the period of exclusivity, provided that the period does not extend beyond certain limits defined by law. The small business cases covered by Chapter 11 are governed by slightly different exclusivity requirements.
Harm or leave intact any type of claim. In red Woodbrook Assocs. Only classes with disabilities can vote on a proposed plan under Chapter 11; classes that are not impeded under the plan are conclusively considered to have accepted the plan and, therefore, do not have the right to vote on whether to accept or reject it. Not having the right to vote in the reorganization process.
The plan complies with the applicable provisions of this title. Canaan Cellular Invs. I am. DISH, 634 F, third to 86 (citing 11 U, S, C.
Jones, 72 F, 3d 341, 346 (3d Cir. Who isn't a stockbroker or commodity broker. Rockett, 522 F, 3d 1080, 1081 (10th Cir). See also In re Blendheim, 803 F, 3d 477, 485-86 (9th Cir.
Unlike a chapter 11 debtor, it is the only entity that can submit a plan. May 20, 2004 (quoting H., R. Ahart, If hardship leave should be granted in Chapter 13, 87 a.m. Porter, note 228 above, p.
9, p. 32 (Fewer homeowners file for chapter 7 bankruptcy); many prefer chapter 13 bankruptcy because it provides specific benefits to homeowners who may be behind on their mortgage payments. See above Individual Debtors. Sommer & Richard Levin, 8 Collier bankrupt ¶ 1200.01 (16th ed.
See also In re LaRosa Greenhouse, LLP, 565 B, R. In the red city of Stockton, California. H39409-10 (1997) (statement by the representative. In the red city of Detroit, Michigan.
See City of San Bernardino, California. See Jefferson City in red. Logo (in red), 432 MB, R. Dawson, The Problem of Local Methods in Cross-Border Insolvency, 12 Berkeley Bus.
IRS (writable in red), 188 KB, R. See general CRS report R45113, Bankruptcy and Student Loans, by Kevin M. Wood (in red wood), 825 F, 2d 90, 94 (5th Cir). Exonerates the debtor from all debts that arose before the date of the relief order under this chapter.
This confluence of increasing personal bankruptcies in a period of prosperity, an increasingly expensive and dysfunctional Chapter 11 reorganization system, and the macroeconomic competitive pressures of globalization have driven legislative efforts to reform the bankruptcy code. The first permanent federal bankruptcy law was enacted in 1898 and remained in force, with amendments, until it was replaced by a new comprehensive law in 1978, whose essential structure is still in force today. On the other hand, the increasing pressure of economic globalization and the increasing challenges of bankruptcy involving multinational corporations have created incentives for bankruptcy reform. .
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