Bankruptcy

The concept of bankruptcy has been around for millennia. The word bankruptcy originates from old Latin bancus (a bench or table) and ruptus (broken). A “bank” originally referred to a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money.  When a banker failed, he broke his bench to advertise to the public that he was no longer in business.

Here, in the United States, bankruptcy is a matter placed under federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), which allows Congress to enact “uniform laws on the subject of bankruptcies throughout the United States.” The Congress has enacted statutes governing bankruptcy, primarily in the form of the Bankruptcy Code, located at Title 11 of the United States Code. While bankruptcy cases are always filed in United States Bankruptcy Court, bankruptcy cases, particularly with respect to the validity of claims and exemptions, are often dependent upon state law. State law therefore plays a major role in many bankruptcy cases, and it is often not possible to generalize bankruptcy law across state lines.

Generally, a debtor declares bankruptcy to obtain relief from debt, and this is accomplished either through a discharge of the debt or through a restructuring of the debt.  There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:

  • Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy;
  • Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts
  • Chapter 11: rehabilitation or reorganization, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganization which typically allows companies to continue to function while they follow debt repayment plans
  • Chapter 12: rehabilitation for family farmers and fishermen;
  • Chapter 13: rehabilitation with an affordable payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to some portion of their debts;
  • Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.

While Chapters 7 and 13 are the most common form of bankruptcy filed, choosing the correct Chapter under which to proceed requires meaningful assessment of the client’s unique situation. Regardless of which Chapter one files, the primary benefits of bankruptcy is the automatic stay which automatically stops and brings to an immediate halt most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection activity.

Chapter 7
Chapter 13
Chapter 11
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Bankruptcy vs. Debt Settlement
Business Bankruptcies
Foreclosure and Wage Garnishment
Questions You Should Ask
Eliminate Income Tax
Emergency Bankruptcy