Bankruptcy

A legal proceeding involving an individual or small business which is unable to pay back unpaid debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved from the debt obligations incurred prior to submitting for bankruptcy.

Bankruptcy laws assist people to who can no longer pay their creditors get a fresh start - by liquidating assets to pay their debts or by making a repayment plan. Bankruptcy laws also protect troubled companies and provide for orderly distributions to business creditors through reorganization or liquidation. Theoretically, the ability to file for bankruptcy may benefit an overall economy by giving persons and businesses one more chance and providing creditors with a measure of debt repayment.

Bankruptcy filings in the United States can fall under one of many chapters in the Bankruptcy Code, such as Chapter 7 (which involves liquidation of property), Chapter 11 (company or individual "reorganizations") and Chapter 13 (debt repayment with reduced debt covenants or payment plans). Bankruptcy filing specifications differ widely between various nations, resulting in higher and lower filing rates depending on how easily a person or business can complete the procedure.

Bankruptcy in the United States is a matter placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), that 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. Federal law is amplified by state law in some places where Federal law fails to speak or specifically defers to state law.

While bankruptcy cases are always filed in United States Bankruptcy Court (an adjunct to the U.S. District Courts), 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 usually not possible to generalise bankruptcy law across state lines.

Usually, a debtor declares bankruptcy to get relief from debt, and this is accomplished either through a discharge of the debt or even through a restructuring of the debt. Usually, when a debtor files a voluntary petition, his or her bankruptcy case commences.

The goal of bankruptcy is two fold:

(1) to offer the debtor (the party filing bankruptcy) a fresh start and

(2) to pay creditors in an orderly manner. Bankruptcy is governed by federal law which often trumps state law when it comes to the actions of both the debtor and creditors.