Purpose of Bankruptcy

Versionen från 5 januari 2013 kl. 12.49

A legal proceeding regarding an individual or business that is struggle to pay back outstanding 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 some of outstanding debt. After the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred before filing for bankruptcy.

Bankruptcy laws help people who can no longer pay their creditors get a fresh start - by liquidating assets to pay their debts or by building a repayment plan. Bankruptcy laws also safeguard struggling businesses 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 individuals and businesses another opportunity 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 (that 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 vary widely between different countries, resulting in higher and lower filing rates depending on how easily a person or business can complete the process.

Bankruptcy in the United States is a issue 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, mainly 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 laws.

While bankruptcy cases are always filed in United States Bankruptcy Court (an adjunct to the U.S. District Courts), bankruptcy cases, especially based on the validity of claims and exemptions, are usually dependent upon State law. State law therefore performs a major role in many bankruptcy cases, and it is often not possible to generalise bankruptcy law across state lines.

Usually, 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. Generally, whenever a debtor files a voluntary petition, his or her bankruptcy case commences.

The purpose 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 usually trumps state law when it comes to the actions of both the debtor and creditors.