Bankruptcy in the United States

Bankruptcy in the United States

Bankruptcy in the United States is a legal process through which individuals or businesses who are unable to repay their outstanding debts can seek relief from some or all of their obligations. The process is governed by federal law, primarily the United States Bankruptcy Code, and is designed to provide a fresh start for the debtor while ensuring fair treatment for creditors.

History

The concept of bankruptcy has evolved significantly since its inception. The first bankruptcy law in the United States was enacted in 1800, but it was repealed in 1803. Subsequent laws were passed in 1841 and 1867, but both were short-lived. The modern framework for bankruptcy was established with the Bankruptcy Act of 1898, which was the first permanent bankruptcy law in the United States. This act was eventually replaced by the Bankruptcy Reform Act of 1978, which created the current Bankruptcy Code.

Types of Bankruptcy

The Bankruptcy Code provides for several types of bankruptcy proceedings, commonly referred to by their chapter numbers:

Chapter 7

Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, involves the sale of a debtor's non-exempt assets by a trustee. The proceeds are then distributed to creditors. Individuals and businesses can file for Chapter 7 bankruptcy.

Chapter 11

Chapter 11 bankruptcy, often used by businesses, allows for reorganization under the bankruptcy laws. It provides the debtor with a fresh start, subject to the debtor's fulfillment of its obligations under a plan of reorganization.

Chapter 13

Chapter 13 bankruptcy is designed for individuals with regular income who can pay back at least a portion of their debts through a repayment plan. This type of bankruptcy allows debtors to keep their property and pay debts over time, usually three to five years.

The Bankruptcy Process

The bankruptcy process begins with the filing of a petition in bankruptcy court. This petition can be filed by the debtor (voluntary bankruptcy) or by creditors (involuntary bankruptcy). Once the petition is filed, an automatic stay goes into effect, which halts most collection actions against the debtor.

The Role of the Trustee

In most bankruptcy cases, a trustee is appointed to oversee the case. The trustee's duties include reviewing the debtor's petition and schedules, liquidating non-exempt assets in Chapter 7 cases, and distributing the proceeds to creditors.

The Discharge

A discharge in bankruptcy releases the debtor from personal liability for certain types of debts. The discharge is a permanent order prohibiting creditors from taking any form of collection action on discharged debts.

Impact on Creditors

Creditors are affected by bankruptcy in several ways. They may receive less than the full amount owed, and their ability to collect on debts is limited by the automatic stay and the discharge. However, bankruptcy law provides mechanisms for creditors to assert their rights, such as filing proofs of claim and objecting to the discharge of certain debts.

Recent Developments

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 made significant changes to the Bankruptcy Code, including the introduction of a means test for Chapter 7 filings and additional requirements for debtor education and counseling.

See Also

• Insolvency
• Debt settlement
• Credit counseling

References

• United States Courts. "Bankruptcy Basics." Retrieved from [1]
• American Bankruptcy Institute. "History of Bankruptcy." Retrieved from [2]

External Links

• United States Trustee Program
• Bankruptcy Information from Nolo