Bankruptcy - sustany/dvg GitHub Wiki

Overview:

Bankruptcy�law�provides for the reduction or elimination of certain�debts, and can provide a timeline for the repayment of�nondischargeable debts�over time. It also permits individuals and organizations to repay�secured debt. Generally, secured debt is�debt�with�real estate�or�personal property�like vehicles pledged as�collateral--often on terms more favorable to the�debtor.

Federal�bankruptcy�law�is contained in�Title 11�of the�U.S. Code.�Congress�passed the�Bankruptcy Code�under its constitutional grant of�authority�to "establish... uniform laws on the subject of Bankruptcy throughout the United States."�The grant of authority is under�U.S. Constitution Article I, Section 8.�States�may not regulate bankruptcy, but they may pass�laws�that govern other aspects of the relationship between the�debtor and creditor. A number of sections of�Title 11�incorporate the�debtor-credit law�of the individual�states.

Bankruptcy�proceedings�are supervised by and�litigated�in�Bankruptcy Court, which is part of the�Federal District Court system.�Congress�established the�U.S. Trustee Program�to oversee the administration of bankruptcy�proceedings, and authorized the U.S.�Supreme Court�to promulgate the�Federal Rules of Bankruptcy Procedure.

Types of Bankruptcy:

Chapter 7

Chapter 7�provides for the�discharge�of�unsecured debt, such as�debt�from credit cards and personal�loans.�Secured debt�is typically unaltered, meaning that the�collateral�securing the debt remains in the�debtor�s�possession�as long as timely payments are made.�Chapter 7�is always available to�corporations�and individuals with primarily�business�debt. Otherwise, individuals cannot�file�a�Chapter 7�petition�unless they meet certain�income�requirements.

Chapter 9

Chapter 9�governs the reorganization of�municipalities�and related local�entities, such as county-owned hospitals and school districts. Individuals and�corporations�cannot�file�for bankruptcy under�Chapter 9.

Chapter 11

Chapter 11�is the most comprehensive chapter of the�Bankruptcy Code; it provides several options to reorganize debt, e.g., by repaying some�debts,�discharging�others, and restructuring the remainder. Although individuals may�file�for�Chapter 11�relief, the relatively high filing fees and administrative costs lead most individuals to favor�Chapter 7�or�Chapter 13�bankruptcy proceedings.

Chapter 12

Chapter 12�provides for the restructuring of�debt�for family farmers. Only family farmers (as defined in�Sec. 101�of�Title 11) are eligible and, though not analogous, it shares many characteristics with a�Chapter 13�proceeding.

Chapter 13

Chapter 13�permits the�discharge�of some�debt, as well as the repayment of other�debt�over a period of three to five years. It may also permit a reduction in�principal�owed on�secured debt, or the elimination of these�debts�altogether. It can also be used to structure a repayment plan for�debt�that cannot be�discharged�in bankruptcy. Only individuals may�file�under this chapter, and there are some limited�income�and�debt�qualifications.

Generally, recent�tax�debt�as well as�child support,�criminal�restitution, and student�loans will not be�discharged�in bankruptcy unless they are repaid in full by the�debtor�during the course of the�proceeding.

Individuals are permitted to keep certain�assets�without regard to the type of bankruptcy sought. For example,�Individual Retirement Accounts (IRAs)�are protected under�� 522(d)�of�Title 11�and thus cannot be involuntarily used to repay�creditors�in a bankruptcy. Varying levels of�home equity�are also often protected, as are personal vehicles in varying amounts.

Recent Cases:

In�Czyzewski v. Jevic Holding Corp., the U.S.�Supreme Court�held that "when a�bankruptcy court�orders a�Chapter 11�case�dismissed, it can't also order the�distribution�of the�debtor's�assets�in a way that contradicts the order of payment in a bankruptcy�liquidation."1�This is an affirmation of the�Chapter 11�absolute priority rule, which stipulates the order of payment in a�liquidation. Compare to the 2009�Chapter 11�bankruptcy filing of General Motors, in which the absolute priority rule was not followed.2

In�Midland Funding, LLC v. Johnson, the�Court�ruled "that�debt collectors can use�bankruptcy proceedings�to try to collect�liabilities�that are so old the�statute of limitations�has expired."3�This result, however, is dependent on�state law. In this case, the relevant�state law�provides that a�creditor�has the right to payment of a�debt�even after the�statute of limitations�has expired, according to the�Court's�opinion.

Stern v. Marshallwas a complex and high-profile�case�involving the�estate�of the�defendant's late husband, and eventually her own bankruptcy. Anna Nicole Smith, a.k.a. Vickie Marshall,�filed�for bankruptcy in California while the�estate�case was open in a Texas�probate court. The�bankruptcy court's�decision�included a�judgment�on a�counterclaim�that Marshall made against the�plaintiff, which was otherwise unrelated to the bankruptcy. Although�state law�allowed the�bankruptcy court�jurisdiction�in this situation, the U.S.�Supreme Court�held that it was an unconstitutional exercise of�jurisdiction. Essentially,�bankruptcy courts�have very�limited jurisdiction.

The�Stern�precedent�was relevant years later in�Executive Benefits Insurance Agency v. Arkison, in which the�Court�held that, under�Stern's reasoning, it is unconstitutional for a�bankruptcy court�to enter a�final judgment�on a bankruptcy-related�claim. It may, however, issue proposed�findings of fact�and�conclusions of law, which are to be�reviewed�de novo�by the�district court.

1�Stephen J. Lubben,�Supreme Court Ruling Draws a Vague Line in Bankruptcy Cases, N.Y. Times 2�Daniel Fisher,�Supreme Court Leaves GM Vulnerable to Pre-Bankruptcy Ignition Suits, Forbes 3�Greg Stohr and Dawn McCarty,�Supreme Court Backs Bids to Collect Outdated Debt in Bankruptcy, Bloomberg Politics

BANKRUPTCY RESOURCES

Federal Materials
  • Title 11�of the�U.S. Code�- Federal Bankruptcy Code
    • Chapter 1�- General Provisions, Definitions, and Rules of Construction
    • Chapter 3�- Case Administration
    • Chapter 5�- Creditors, the Debtor, and the Estate
    • Chapter 7�- Liquidation
    • Chapter 9�- Adjustment of Debts of a Municipality
    • Chapter 11�- Reorganization
    • Chapter 12�- Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income
    • Chapter 13�- Adjustment of Debts of An Individual With Regular Income
    • Chapter 15�- Ancillary and Other Cross-Border Cases
  • 28 CFR Part 58�- Regulations Relating to the Bankruptcy Reform Acts of 1978 and 1994
  • Federal Rules of Bankruptcy Procedure
  • Official Bankruptcy Forms�(uscourts.gov)
  • Recent U.S. Supreme Court Decisions on Bankruptcy
  • Federal Bankruptcy Courts - By State
State Materials
  • State Civil Codes
Other Resources
  • U.S. Trustee Program�(justice.gov)
  • American Bankruptcy Institute�(abi.org)