United States Rules for Bankruptcy Procedure
- The U.S. judicial system administers bankruptcy rules and proceedings.gavel image by Cora Reed from Fotolia.com
More than a century of bankruptcy law culminated in the Bankruptcy Code, enacted by Congress in 1978. This code governs all proceedings and has been amended throughout the years. The processes administered by bankruptcy courts are governed by the Federal Rules of Bankruptcy Procedure. Every judicial district in the United States includes a bankruptcy court. Under today's law, U.S. citizens have several options when faced with the prospect of bankruptcy. - Chapter 7 rules for bankruptcy, also referred to as liquidation, require that a trustee be appointed to assume responsibility for a debtor's assets through a court-documented procedure. This person converts eligible assets to cash and distributes the cash to creditors. According to information from uscourts.gov, a website maintained by the administrative office of the federal court system, in many cases the court determines there to be no eligible property and a person's assets are not liquidated. In these cases the person is found to be not liable for certain "dischargeable debts." Amendments to bankruptcy procedures from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require a means test to determine eligibility.
- Chapter 11 rules for bankruptcy allow a business to reorganize according to a court-sanctioned plan and pay off creditors as it continues to operate. The law requires a commercial establishment to submit information about the reorganization plan to creditors for approval, according to the information from U.S. Courts.gov. It also requires that a bankruptcy administrator, or trustee, oversee the process. Generally, strategies include cutting back on costs and revamping operations to be profitable, or renegotiating or ending contracts that prove to be unsustainable. Over time, the debtor may pay off money owed or negotiate terms with creditors to settle debts. This enables the business to end the process with a viable business plan that will allow it to turn a profit.
- Chapter 13 bankruptcy rules are also called Adjustments of Debts of an Individual with Regular Income. This law allows an individual to create a plan to repay creditors over a period of time without liquidating all assets. A trustee must be appointed and the plan must be approved by the bankruptcy court at a hearing. According to U.S. Courts.gov, the typical period for repayment is three to five years. Chapter 13 rules allow the debtor to keep possession of real estate or other large assets as long as conditions of the repayment plan are being met. While the plan is enacted, the debtor is also protected from lawsuits and wage garnishment.
