Purpose of Bankruptcy
A legal proceeding involving a person or small business which is struggle to pay back unpaid debts. The bankruptcy process starts with a petition filed by the borrower (most common) or on behalf of lenders (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 assist people to who can no longer pay their creditors get a fresh start - by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect struggling companies and provide for orderly distributions to business creditors by way of reorganization or liquidation. Theoretically, the capability to file for bankruptcy may benefit an overall economy by giving persons and businesses one more 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 (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 vary widely between various nations, leading to higher and lower filing rates depending on how easily an individual or business can finish the procedure.
Bankruptcy in the United States is a issue 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, found 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 usually filed in United States Bankruptcy Court (an adjunct to the U.S. District Courts), bankruptcy cases, particularly based on the validity of claims and exemptions, are usually based upon State law. State law therefore performs a significant part in several bankruptcy cases, and it is usually not possible to generalise bankruptcy law across state lines.
Commonly, 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. Usually, whenever 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 fashion. Bankruptcy is governed by federal law which often trumps state law when it comes to the actions of both the debtor and creditors.
