Bankruptcy is a situation where a person legally declares that his or her present financial condition doesn't allow repayment of outstanding debts. The person is called a bankrupt. The term is equally applicable to both business and individuals. There are two types of bankruptcy based on how they are filed in a court. Bankruptcy can be both voluntary and involuntary. It should be kept in mind that involuntary bankruptcy is rare.Voluntary bankruptcy- The petitioners here are debtors, Involuntary bankruptcy- The petitioners are the creditors in this case. This method is used to enforce the rights of the creditors.
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The recent recession has shot up the bankruptcy filing in USA. There has been a huge number of bankruptcy filing by several large American corporations like- Lehman Brother Holdings (2008), Washington Mutual (2008), CIT Group, etc. In 2008 alone there was about 1,117,771 bankruptcy filings out of those 744,424 were chapter-7 bankruptcies, while 362,762 were chapter-13. Chapter-15 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it is aimed at preventing cross border insolvency by foreign firms with debts here.
In the state of Maryland for example filings outpaced national filing rate by 20% with a 36% rise in both personal and business bankruptcy filings in the last financial year. It rose to more than 40% in the year 2008 reported Washington Post.
It has been seen than individual bankruptcy cases are multifaceted and complex. However, in most cases excessive medical bills have been the cause of personal bankruptcy filings.
In US constitution provision for bankruptcy has been mentioned in Article-1, Section-8, Clause-4. In 1978, the bankruptcy Reform Act came into existence and since then it has been reformed several tomes. Title-18 and Title-26 of U.S Code deals with the criminal and tax related aspects of bankruptcy law. Title-28 of U.S. Code deals in details the procedures related to bankruptcy.
Federal courts have exclusive jurisdiction on bankruptcy cases. As result an entity can't file for bankruptcy in a state court. Most of the times we see filings are made under chapter-7, chapter-11 and chapter-13. In Chapter-7 there is an extensive guideline on a court supervised liquidation of debtor's property. A trustee takes up the property and converts in liquid asset.
Chapter-11 stresses on the reorganization of a commercial entity in a manner such that it is able to continue business as well as repay creditors. The reorganization is of course court approved. The entity must provide a disclosure statement stating the plan for reorganization. This will enable the creditors to evaluate the plan too.
Chapter-13 is used to make debt related adjustment to an individual with a regular source of income. Many people who don't qualify the means test for chapter-7 bankruptcy filing file under this section. Chapter-13 is advantageous because it enables debtors to withhold important assets like a house.
Chapter-12 is meant to provide relief for family farmers and fishermen with regular income. The process is very similar to filing bankruptcy under chapter-13 of U.S Code.
Federal and state governments have their own exemption lists of items that can't be claimed by creditors as part of bankruptcy. It is important that you consult an experienced Maryland bankruptcy lawyer to protect you from creditors.
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