What is Bankruptcy
A legal proceeding regarding a person or business that is struggle to pay back outstanding debts. The bankruptcy process starts with a petition filed by the debtor (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 from the debt obligations incurred prior to submitting for bankruptcy.
Bankruptcy laws assist people to who can no more pay their creditors get a fresh start - by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also safeguard troubled firms and provide for orderly distributions to business creditors through reorganization or liquidation. In theory, the ability to file for bankruptcy can benefit an overall economy by giving individuals and companies 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 of the Bankruptcy Code, such as Chapter 7 (which involves liquidation of property), Chapter 11 (company or personal "reorganizations") and Chapter 13 (debt repayment with reduced debt covenants or payment plans). Bankruptcy filing specifications vary widely between different nations, leading to higher and lower filing rates depending on how easily a person or company 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, 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 expressly defers to state laws.
While bankruptcy cases are usually 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 plays a significant part in several bankruptcy cases, and it is usually not possible to generalise bankruptcy law across state lines.
Normally, a debtor declares bankruptcy to obtain relief from debt, and this is accomplished either through a discharge of the debt or even through a restructuring of the debt. Generally, 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 fashion. Bankruptcy is governed by federal law which often trumps state law when it comes to the actions of both the debtor and creditors.
