The driving principle behind the United States Bankruptcy Law is to provide an opportunity for citizens to start afresh in case of bankruptcy by either adopting a repayment or reorganization plan or by liquidating their assets
Bankruptcy is classified based on the procedure adopted for filing before Court, as voluntary and non voluntary. In voluntary winding up, the debtor himself moves a petition to Court seeking it to adjudge him as bankrupt. While in the case of non voluntary winding up, it is not the debtors, but the creditors who petition before the Court.
In the United States, the law relating to Bankruptcy is formulated by the power bestowed on the Government by the Constitution. Article 1 Section 8 Clause 4 empowers the Congress to pass uniform laws on bankruptcy for United States. Legislative action based on such power resulted in the codification of the Bankruptcy laws of the country in Title 11 of the United States Code.
Title 11 of the United States Code envisages 6 types of Bankruptcy proceedings namely:As the name suggests, Chapter 7 deals with liquidation. The Court may be approached by an individual, partnership or a corporation. A bankruptcy trustee is appointed, who is duty bound to call a creditors meeting wherein the debtor is questioned under oath by both the creditors and the trustee. After providing such an opportunity for both the creditors, the trustee may sell the non exempt property of the debtor and the proceeds from the same is distributed amongst the creditors.
If an individual makes a claim under this Chapter, he usually receives a discharge wherein he is exempted from personal liability with respect to such debts.
As the term suggests, this Chapter provide for re-organization of municipalities facing financial difficulties. The municipalities are given the right to set forth a plan for adjustment of debts, which is thereafter implemented through the Courts
This chapter can be availed by corporations, partnerships and individual business owners. The main aim of these provisions is to provide corporations with an opportunity to salvage their business by a process of re-organization. The debtor in this case is termed as a debtor in possession, since he has possession of his assets during the period of reorganization.
Confirmation of the reorganization plan submitted by the debtor entails the discharge of the debtor’s liabilities subject to certain exceptions.
This is a Chapter provides a mechanism for family farmers and fisherman who have fiscal problems, an opportunity to repay their debts, wholly or partly over a period of time. The debtor’s herein has to submit a repayment plan envisaging regular payments. A trustee is appointed who carries on the duties of evaluating the case as well as carrying out the functions of a disbursing agent.
When all payments under the plan have been made, the debtor’s liability will be discharged subject to certain condition and exceptions. Chapter 12 also envisages a hardship discharge.
It is called the wage earners plan and allows for repayment of debt either wholly or in part by individuals who earn a regular income, over a period of time. On filing the petition, a trustee would be appointed who will evaluate the case as well as fulfill the duties of a disbursing agent. On the confirmation by the Court of the repayment plan submitted before it by the debtor, the trustee should disburse the funds amongst the creditors. On payment of all sums envisaged under the plan, the debtor may be discharged subject to certain conditions. Chapter 13 also envisages a hardship discharge.
Chapter 15 was added to the Code by the Bankruptcy Abuse Prevention and Consumer Protection Act, 2005 and adopts the provisions of the UNCITRAL Model Law on Cross Border Insolvency. It envisages providing solutions in bankruptcy situations to claimants, debtors, assets etc that is spread over the territory of more than one country. This chapter aims to inculcate an environment of cooperation between the US Government and the Governments and authorities of other countries.
In all of the above proceedings, an automatic stay is envisaged, halting any actions against the debtor and his property, subject to the exception listed under Title 11.
In addition to the United States Code, title 11, the Bankruptcy Abuse Prevention and Consumer Protection Act, 2005 has also been enacted to provide clarity with respect to bankruptcy provisions.
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