Bankruptcy Code Overview and TerminologyBanker Resource
March 20, 2013 — 1,313 views
Bankruptcy is a legal condition which arises when one is not able to pay back the debt that he/she owes to the creditors. To deal with the bankruptcy cases, the United States Congress enacted the Bankruptcy code, which is a federal law that concerns the legislation of all cases dealing with bankruptcy. The code which was first enacted in 1978 has been subjected to many amendments several times since then.
Dealing with Bankruptcy Cases
When a bankruptcy case is filed, its procedure is controlled by the rules of the federal government, which is collectively called the Bankruptcy rules, and the local rules of the court where the bankruptcy case is filed. These rules along with the codes of bankruptcy dictate the formal legal procedures for dealing with bankruptcy cases. The cases are overseen by a bankruptcy trustee, who is an individual appointed by the federal government.
Chapters of the Code
The code of bankruptcy provides legislation for 6 basic forms of bankruptcy cases. Those who are seeking relief under this code can file petitions under different chapters of this code. A case will be referred by the chapter in which the petition is filed. This code can be found in the Title 1 of the Untied States Code. Chapters 1, 3, and 5, which are the first 3 chapters of the code, deal with the general procedures and rules that concern bankruptcy. The remaining 6 chapters, namely chapters 7, 9, 11, 12, 13, and 15, deal with specificities of proceedings that one is concerned with in a bankruptcy case. One should be familiar with the bankruptcy terminology in order to get around with these cases.
Understanding the Chapters and Terminology
The chapter 7 of the Bankruptcy code which involves liquidation is the section under which most bankruptcy cases are filed. Under this chapter, a business, an individual, a partnership, or a corporation can file a bankruptcy case. For filing the case, the applicant needs to go for an approved counseling session involving credit issues, not less than a period of 6 months before the case was filed. The person filing the case can keep his assets protected so that they are not entirely liquidated. According to the terms of bankruptcy, this is termed as exemptions. Chapter 9 deals with the bankruptcy cases involving public institutions and establishments. This chapter was formed during the period of the Great Depression and is hardly put into use nowadays.
Chapter 11 provides provisions for the owner of a business to restructure the payment of the credit he had taken, so that the business can be kept active and without debt. Chapter 12 deals with the bankruptcy issues of certain special types of families. Here a comprehensive instruction is given as of how the sum which is overdue should be paid by these families. As per the chapter, the amount which is overdue should be repaid by taking into consideration the explicit income of such families.
Chapter 13 deals with laws that concern the bankruptcy issues of certain small unincorporated businesses and individuals, which do not come under chapter 7. This chapter is also termed as reorganization, under bankruptcy terminology. Here, the business or the individual involved is supposed to have an unsecured or a protective liability that is less than a certain amount. The sum can vary so as to confirm that it aligns with consumer price index. If the individual qualifies a test which is known as Means Test in banking terms, then he can file the case under Chapter 7 instead of Chapter 13.
Chapter 15, which is the latest addition to the code, deals with companies that do business transactions in multiple countries. This chapter was set up to guarantee that the codes which are put up in the United Nations Commission on The International Trade Law are adhered to.