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The Process of Bankruptcy

What the Constitution Says

Article 1, Section 8 of the United States Constitution allows Congress to make laws concerning bankruptcy.  This gave Congress the right to create the Bankruptcy Code in 1978, which governs all the laws for bankruptcy.  The Bankruptcy Code and rules sets the standards for dealing with individual and business debt problems.

Bankruptcy Code

The United States bankruptcy judge is the person allowed to oversee bankruptcy cases to decide whether a debtor can file for bankruptcy or receive a discharge of debts.  Most cases under Chapters 7, 12 or 13 and sometimes 11 are handled by a case trustee.  The debtor very rarely ever deals with the judge.  In the case of Chapter 7, the debtor will not see the judge unless there is a court hearing, but usually there is only a meeting of the debtor with the creditors.    The meeting is called a “341 meeting” because it comes from section 341 of the Bankruptcy Code that states all debtors are to meet with their creditors to answer any questions that need to be addressed.

Goal of the Bankruptcy Code

The main goal of the Bankruptcy Code is to help debtors have an opportunity to start afresh and begin a new future without the worry of preexisting debt.  To help achieve this goal the Local Loan v. Hunt publication gives debtors the opportunity to be released from debt and keeps creditors from ever bothering the debtors again.  The publication for Bankruptcy Discharge is in a question and answer format, discusses the timing, which debts will be discharged and which ones will not be discharged and objections and revocations of discharge.  Also, it gives the debtors rules to follow if the creditor tries to contact them after the bankruptcy is filed.

Different Chapters

Chapter 7: entitled Liquidation, this allows a case trustee to take over the debtors assets and turn them into cash to pay the creditors; debtor does get the opportunity to keep certain property

Chapter 9: entitled Adjustments of Debts of a Municipality, allows them to reorganize debt to pay it off promptly

Chapter 11: entitled Reorganization, this is for commercial businesses to allow them to pay creditors while staying in business

Chapter 13: entitled Adjustments of Debts for an Individual with Regular Income, sometimes this is better than Chapter 7 because it allows the debtor to keep their house from foreclosing

Chapter 15: entitled Ancillary and other Cross Border Cases, this helps settle foreign insolvency cases

V. Kunze enjoys researching and writing about bankruptcy, and she recommends that you check out if you are considering filing for bankrutpcy.

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