Purpose of Bankruptcy
A legal proceeding regarding a person or business which is struggle to pay back unpaid debts. The bankruptcy process begins with a petition filed by the borrower (most common) or on behalf of creditors (less common). All of the debtor's property are measured and evaluated, whereupon the assets are used to pay back a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred before filing for bankruptcy.
Bankruptcy laws help people who can no longer pay their creditors get a fresh start - by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors by way of reorganization or liquidation. Theoretically, the ability to file for bankruptcy may benefit an overall economy by giving persons and businesses another chance and offering creditors with a measure of debt repayment.
Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7 (that involves liquidation of assets), Chapter 11 (company or personal "reorganizations") and Chapter 13 (debt repayment with reduced debt covenants or payment plans). Bankruptcy filing specifications vary widely among different nations, resulting in higher and lower filing rates depending on how easily a person or company can finish the procedure.
Bankruptcy in the United States is a issue placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), that 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, found 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 law.
While bankruptcy cases are usually filed in United States Bankruptcy Court (an adjunct to the U.S. District Courts), bankruptcy cases, specifically based on the validity of claims and exemptions, are often based upon State law. State law therefore plays a major part in several bankruptcy cases, and it is often impossible to generalise bankruptcy law throughout state lines.
Commonly, a debtor declares bankruptcy to get relief from debt, and this is accomplished either through a discharge of the debt or through a restructuring of the debt. Generally, whenever a debtor files a voluntary petition, his or her bankruptcy case commences.
The purpose 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 usually trumps state law when it comes to the actions of both the debtor and creditors.
