13: Bankruptcy
- Page ID
- 11156
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)After reading this chapter, you should understand the following:
- A short history of US bankruptcy law
- An overview of key provisions of the 2005 bankruptcy act
- The basic operation of Chapter 7 bankruptcy
- The basic operation of Chapter 11 bankruptcy
- The basic operation of Chapter 13 bankruptcy
- What debtor’s relief is available outside of bankruptcy
Bankruptcy is understood as an aspect of financing, a system that permits creditors to receive an equitable distribution of the bankrupt person’s assets and promises new hope to debtors facing impossible financial burdens. Without such a law, we may reasonably suppose that the level of economic activity would be far less than it is, for few would be willing to risk being personally burdened forever by crushing debt. Bankruptcy gives the honest debtor a fresh start and resolves disputes among creditors.
- 13.1: Introduction to Bankruptcy and Overview of the 2005 Bankruptcy Act
- This page outlines U.S. bankruptcy law, which has evolved from punitive measures to a system offering debt relief for creditors and debtors. Rooted in the Constitution, it enables Congress to enact uniform laws, highlighted by the 2005 BAPCPA. This act defines six bankruptcy types, including Chapters 7, 11, and 13, catering to varied debtor needs.
- 13.2: Case Administration; Creditors’ Claims; Debtors’ Exemptions and Dischargeable Debts; Debtor’s Estate
- This page explains the administration of Chapter 7 bankruptcy, covering filing procedures, the automatic stay, and the trustee's role in asset liquidation and creditor payment. It emphasizes prioritization of claims, including those arising post-filing, and the necessity for debtors to submit complete financial information.
- 13.3: Chapter 7 Liquidation
- This page outlines the essentials of Chapter 7 bankruptcy, including case dismissal grounds, means-testing, and asset distribution. It details trustee responsibilities in asset liquidation and investigations. Discharges may be denied due to fraud or failure to provide records, but asset liquidation continues regardless. The law safeguards debtors from discrimination despite unpaid debts.
- 13.4: Chapter 11 and Chapter 13 Bankruptcies
- This page explains Chapter 11 and Chapter 13 bankruptcy, detailing their functions in helping individuals and businesses manage financial distress. Chapter 11 focuses on corporate reorganization, allowing debtors to propose repayment plans while continuing operations. Chapter 13 assists individuals with steady incomes to repay debts over time under judicial supervision.
- 13.5: Alternatives to Bankruptcy
- This page outlines nonbankruptcy alternatives for debtors, such as assignments for the benefit of creditors, compositions, and receiverships. These options may be preferred over bankruptcy due to lower costs and reduced stigma. An assignment involves a trustee managing asset distribution, a composition requires creditor agreement to accept less than owed, and receivership has a court-appointed receiver overseeing debtor assets.
- 13.6: Cases
- This page reviews legal cases involving bankruptcy discharges, focusing on student loans and prosecution costs. Angela Zygarewicz sought to discharge her student loans due to hardship but was denied because her issues arose post-discharge. Meanwhile, Johns-Manville Corporation's Chapter 11 filing highlighted the goal of rehabilitation. Ryan's bankruptcy case revealed that prosecution costs could be dischargeable, overturning prior rulings that treated them as criminal fines.
- 13.7: Summary and Exercises
- This page discusses the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which outlines various bankruptcy types (Chapters 7, 9, 11, 12, 13, and 15) allowing for voluntary or involuntary petitions and imposing a legal stay on claims. A trustee oversees asset management, while creditor claims are prioritized. Chapter 7 requires a means test, and Chapters 11 and 13 focus on reorganization plans.
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