Business 250-final paperDecember 13, 1998BankruptcyBankruptcy 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. Certain bankruptcy proceedings allow a debtor to stay in business using revenue that continues to be generated to solve his debts. The bankruptcy law also allows debtors to free themselves of the financial obligations they have accumulated, after their assets have been distributed, even if they have not been paid in full. The bankruptcy code that became effective on October 1, 1979 consists of eight odd-numbered chapters and one even chapter.
In the following paragraphs, I am going to describe in detail some of the different chapters of the bankruptcy code. Chapter One of the codes is titled General Provisions.This chapter covers the basic rules and definitions of bankruptcy.It states that a claim against a debtor is a claim against the property of the debtor. Only a person that resides in the United States has a place of business or property in the United States, or a municipality may be a debtor under this provision.
This chapter also states that you can only file bankruptcy once every six years.Chapter Three deals with Case Administration. It describes the commencement of a case in bankruptcy, the meetings of the creditors, the officers who administer the case, and the administrative powers of those officers. The jurisdiction of the bankruptcy court and the operation of the bankruptcy laws determine whether the filings will either be voluntary or involuntary. A voluntary case under a chapter of this title is begun with the filing in the bankruptcy court with a petition under such chapter by an entity that may Be a debtor. The commencement of a voluntary case constitutes an order of relief.
An order of relief must include all of the property owned by the debtor, a list of all the creditors, a list of the property claimed to be exempt, and a statement of the debtors affairs. Once a bankruptcy proceeding has been filed, creditors may not seek to collect debts outside of the proceeding. More than ninety-nine percent of all bankruptcy petitions are voluntary.Involuntary cases may be filed only under Chapter Seven or Chapter Eleven of this title, and only against a person (except a farmer, family farmer, or a corporation that is moneyed, business, or commercial corporation) that may be a debtor under this chapter.
Petitions may be filed when three or more entities have claims of unsecured debts of at least ten thousand dollars or more. If there are fewer than twelve creditors, one or more of the holders must have at least ten thousand dollars or more. After filing a petition under this section but before the case is dismissed, a creditor holding an unsecured claim that is not contingent may join in the petition as if the creditor were a petitioning creditor under this subsection. If the debtor refuses the involuntary petition, then the court may enter an order of relief only if the debtor is not paying his bills or within one hundred and twenty days a receiver took the debtors possessions to enforce a lien against that property. When you file a petition it acts as an automatic stay. This restrains all of the creditors beginning or continuing to recover claims or establishing a lien with the debtor. An automatic stay ends when the case is closed or when the debtor is discharged of all his debts.
Chapter Five of the bankruptcy code deals with the creditors the debtors and the estate. A creditor who wishes to participate in the distribution of the debtors property may file a proof of claim against the debtor. The priority of the claims comes with the distributing of assets first to the secured debtors and then to the unsecured debtors. Even in the unsecured claims bracket there is a rank of priority. Those who hold the higher rank are paid in full before the lesser rank is paid. The debtor is allowed a few exemptions.
They are allowed fifteen thousand in equity in property used as a burial plot or residence. They are allowed two thousand four hundred in equity of one motor vehicle. Up to one thousand dollars in jewelry is allowed for the debtor. They are given up to eight hundred dollars in property plus seventy five hundred of any unused amount in the first exemption.
Professional books, tools and implements are given an allowance of up to fifteen hundred dollars.Any unmatured life insurance or professionally prescribed health-aids are exempt from the bankruptcy proceedings. Chapter Seven of the bankruptcy code deals with liquidation.
After the order of relief the United States Trustee shall appoint one disinterested person that is a member of the panel of private trustees to serve as an interim trustee in the case. If none of the members are willing to serve as the interim trustee then the United States Trustee may serve as the interim trustee.The trustee shall collect and reduce the money to the estate for which the trustee serves, be accountable for all property received, ensure the debtor shall perform his intentions, investigate the financial affairs of the debtor, examine proofs of claims, oppose the discharge of the debtor, furnish information about the debtor to a party of such interest, make a final report and file an account of the administration of the estate with the court and with the United States Trustee. This chapter of bankruptcy applies to all debtors except railroads, insurance companies, banks, savings and loan associations, homestead associations, and credit unions.
It may also be either voluntary or involuntary. The dismissal of Chapter Seven can only come after the a notice and hearing and only for a cause including the following: an unreasonable delay by the debtor that is prejudicial to creditors, nonpayment of any fees or charges required, and failure of the debtor in a voluntary case to file the information required.Chapter Seven is the most common chapter ofbankruptcy. In a recent survey by the American Bankruptcy Institute ninety-seven percent of debtors filing Chapter Seven bankruptcy cannot afford to pay their debts. Many studies have shown that some debtors who were able to pay even some of their debts filed bankruptcy under Chapter Seven instead of Chapter Thirteen to avoid losing their future income.
Chapter Eleven covers reorganization. It can be either voluntary or involuntary. The main objective for Chapter Eleven is to develop and carry out a reasonable plan of reorganization. This is made available to anyone who may be a debtor under Chapter Seven (except stockbrokers and commodity brokers). The court will order an appointment of a trustee only for instances such as fraud, incompetence, etc.
The duties of a trustee will be the following: to be accountable for all property, to examine proof of goods, to furnish information of interest to all parties, to make a final report and account of the administration of the estate, to investigate the financial condition of the debtor, and to file a plan or to not file a plan and report the case to Chapter Seven.Chapter Twelve was added in nineteen eighty-six and it provides for the adjustments of debts for family farmers with regular annual income. Their debts must not exceed one point five million and fifty percent of their debts must arise from farming.
Chapter Twelve is a special chapter in the fact that it is a sunset account. This means that unless congress reenacts it in nineteen ninety-eight, then it will expire. It is a voluntary type of petition and the trustee is appointed.Chapter Thirteen also deals with an adjustment. It is used for individuals with a regular income. The trustee is appointed and a voluntary petition is required.The debtor must have secured debts of less than seven hundred and fifty thousand and unsecured debts of less than two hundred and fifty thousand.When the debtor files for his plan it must meet the following requirements: the debtor must submit all or some of her future earnings to the supervision of their trustee, full payment on a deferred basis of all claims entitled to a priority, and if the plan classifies claims, it must provide the same treatment for each claim.
In summary there are basically two types of bankruptcy proceedings. A filing under Chapter Seven is called liquidation. This is where a trustee sells the debtors property and pays off the creditors. Under Chapter Eleven, Twelve, and Thirteen, it allows the debtor to use his future earnings to pay off his creditors.
Chapter Seven is the most commonly used and only three- percent of the debtors can actually afford to pay off their debts.