Bankruptcy Code
The constitution of United States permits bankruptcy in the US and authorizes the Congress to enact "uniform laws on the subject of Bankruptcy throughout the US" Since 1801, this right has been exercised by the Congress many a time and most recently had adopted the Bankruptcy Reform Act of 1978. This Act is commonly referred to as the Bankruptcy Code and is codified in the Title 11 of the United States code. Since 1978 , several times the Bankruptcy Code has been amended and most recent amendment took place in 2005 through the BAPCPA or Bankruptcy Abuse prevention and Consumer protection Act.
Overview of the Bankruptcy Code
Entities which seek relief under the Bankruptcy Code, should file their petition under the relevant chapters of the Bankruptcy Code. Title 11 comprises nine chapters of which six chapters can be used to file a petition. The remaining three chapters lay down the rules to guide those petitions. Cases on Bankruptcy are invariably referred to by the chapter under which the petition was made .An overview of the chapters are given below:
This is the most common form of Bankruptcy case that is being filed. In this types a debtor asks for a discharge of his loans by the selling of his non-exempt assets by a court appointed trustee and the subsequent discharge of the proceedings to the creditors. This will be mostly on consumer debts and in most cases as the state allow the debtors to keep the essential property; and that in most consumer cases, all the assets are exempt, the debtor gets to keep all the property.
- Chapter 9 :Reorganization for municipalities
This is the form of reorganization, applicable only to municipalities and should not be confused with liquidation.
- Chapters 11,12 , 13 : Reorganization
These are complex reorganizations which enable the debtor to keep part or all of their property and to use earnings in the future for creditor's pay off. Chapter 7 and 13 are typically filed by consumers. Filings under chapter 11 though permissible for individuals, happen rarely. Chapter 12 is mostly available for 'family farmers' and 'family fishermen'.
- Chapter 15 : Cross Border Insolvency
The BAPCPA 2005 added this chapter which deals with US debts of foreign companies.
- Chapters 1, 3 and 5 : Governmental
These chapters set the guidelines for governing the Bankruptcy petitions that are filed. Chapter 1 specifically deals on the general provisions. Chapter 3 is on the case administrations and Chapter 5 on the creditors, the debtors and the Estate.
