Bankruptcy

Overview

Bankruptcy law allows debtors, who are unable or partially unable to pay outstanding debts, to rid themselves of these debts and obtain a fresh start. As stated by the United States Supreme Court, bankruptcy gives "the honest but unfortunate debtor ... a new opportunity in life and a clear field for the future, unhampered by the pressure and discouragement of preexisting debt." (Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)).

Federal bankruptcy law consists of statutes published in the Bankruptcy Code (11 U.S.C. § 101-1330). In addition, state statutory law on bankruptcy also address areas delegated to states or not covered by federal law. Debtors usually file bankruptcy cases in Federal Bankruptcy Court (an adjunct of the Federal District Courts).

What is bankruptcy law?

A debtor filing for bankruptcy freezes actions taken by creditors (such as lawsuits, wage garnishments, and collection letters) against the debtor. In legal terms, the court orders a stay on actions by creditors against the debtor. The court notifies creditors of the bankruptcy proceeding and orders them not to contact the debtor to try to collect the debt. From this point, creditors may only seek repayment from the debtor within the bankruptcy proceeding. However, creditors have the right to contest the bankruptcy by initiating an adversarial proceeding. After bankruptcy is final, creditors who attempt to collect a debt covered by the bankruptcy may be punished for contempt of court.

Certain debts cannot be cleared (or "discharged") in bankruptcy, such as most taxes, most student loans, alimony, child support, court fines, debts of restitution owed for committing a criminal act, and debts arising from personal injury inflicted while driving under the influence. Debts not listed by the debtor in the bankruptcy filing are not discharged. A bankruptcy judge may refuse a claim upon a finding of dishonesty by the debtor in listing debts.

A debtor may only file for bankruptcy once every eight years. In addition to voluntary bankruptcy filed by a debtor, a creditor can initiate bankruptcy proceedings against a debtor. Bankruptcy filings appear on credit reports for ten years and may impact the ability to obtain credit. Debtors may voluntarily pay debts discharged through bankruptcy, but have no legal obligation to do so.

What are the different types of bankruptcy?

The Bankruptcy Code provides for six different types of bankruptcy, each known by the chapter in the Bankruptcy Code in which it is located. Although they differ in form and procedure, they all provide for permanent relief from certain debts. In bankruptcy terms, the debtor's dischargeable debts are discharged. Most debtors file for bankruptcy under Chapters 7, 11, and 13.

Chapter 7 provides for liquidation of the debtor's non-exempt assets. Certain assets, such as a home or car, may be exempt from bankruptcy. A court-appointed trustee conducts the sale of debtor's non-exempt assets and distributes the proceeds to creditors. Both individuals and businesses may file for bankruptcy under Chapter 7.

Chapter 9 provides for the reorganization of municipalities (which includes cities, towns, villages, taxing districts, municipal utilities, and school districts).

Chapter 11 is usually relied upon by partnerships and corporations. It provides for a supervised reorganization of a business, and allows the debtor to maintain the business while implementing a payment plan confirmed by the court.

Chapter 12 contains bankruptcy provisions applicable to family farmers and fisherman.

Chapter 13 provides for bankruptcy of an individual with a regular income, which is used to make a payment plan to pay debts, usually within three to five years.

Chapter 15 applies to cross-border bankruptcies. It adopts and implements the United Nations' Model Law on Cross Border Insolvency.

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Featured Cases

NIFONG v. EVANS et al
North Carolina Middle District Court
None
Filed: June 30, 2008
Appellant: MICHAEL B. NIFONG, Appellee: DAVID F. EVANS, COLLIN FINNERTY, READE SELIGMANN, Debtor: MICHAEL B. NIFONG, Interested Party: MICHAEL D. WEST, Trustee: SARA A. CONTI
Last Docket Filed: December 4, 2008
(December 3, 2008)
Grochocinski v. Mayer Brown Rowe & Maw LLP et al
Plaintiff as Chapter 7 Trustee for the bankruptcy estate of CMGT, Inc. filed suit against Mayer Brown Rowe and Maw, LLP, Ronald Given and Charles W. Trautner for legal malpractice. Plaintiff alleged that Mayer Brown advised CMGT not to respond to Spehar Capital's motion for TRO. As a result, Spehar obtained a TRO and later a default judgment against CMGT for $17 million. Spehar then used the $17 million default judgment to file an involuntary petition for bankruptcy against CMGT.
Illinois Northern District Court
Contract: Other
Filed: October 10, 2006
Plaintiff: David Grochocinski; Defendant: Mayer Brown Rowe & Maw LLP, Ronald B Given
Last Docket Filed: November 6, 2007
(November 5, 2007)
Leo Stoller vs. Google Inc
Leo Stoller appealed three orders issued by the Bankruptcy Court: an order denying a motion to dismiss, another order denying a motion to stay, and an order denying a motion for leave to object to the claims.
Illinois Northern District Court
Bankruptcy Appeal (801)
Filed: January 8, 2007
Appellant: Leo Stoller Creditor: Pure Fishing, Inc. Appellee: Google Inc
Last Docket Filed: September 26, 2007
(September 25, 2007)

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Dockets

Pilgrims Pride Corporation v. Pool et al
Texas Northern District Court
Withdrawal
Filed: February 9, 2010
Plaintiff: Pilgrims Pride Corporation, Pilgrims Pride Corporation, Pilgrims Pride Corporation Defendant: Charles Pool, Charles Pool, Brenda Pool, Brenda Pool
(February 8, 2010)
Hytken et al
Texas Southern District Court
Appeal
Filed: February 9, 2010
Appellant: Kent B. Hytken, HPGP, LLC
(February 8, 2010)
Butler et al v. Moore et al
Massachusetts District Court
Withdrawal
Filed: February 9, 2010
Plaintiff: Joseph G. Butler, Joseph G. Butler, Joseph G. Butler, Joseph G. Butler, John Strachan and others... Defendant: Edward T. Moore, Edward T. Moore, Edward T. Moore, Lawrence W. Rosenfeld, Lawrence W. Rosenfeld and others...
(February 8, 2010)
Herlan et al v. Timberline Four Seasons Resort, Inc. et al
West Virginia Northern District Court
Appeal
Filed: February 9, 2010
Appellant: Pat J. Herlan, WV Real Estate Broker, Inc. Appellee: Timberline Four Seasons Resort, Inc., Long Run Realty, Inc.
(February 8, 2010)
Jordy et al v. The Education Resources
Tennessee Eastern District Court
Appeal
Filed: February 8, 2010
Appellant: Donny L Jordy, Elissica L. Jordy Appellee: The Education Resources In Re: Donny L Jordy, Elissica L. Jordy
(February 7, 2010)

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Legislation

Bill Introduced: H.R.4173 Wall Street Reform and Consumer Protection Act of 2009
To provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes.
(November 30, 2009)
Bill Introduced: H.R.3936 Preserve Benefits and Jobs Act of 2009
To amend the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 to allow time for pensions to fund benefit obligations in light of economic circumstances in the financial markets of 2008, and for other purposes.
(October 25, 2009)
Bill Introduced: H.Con.Res.184 Expressing the sense of the Congress that the bankruptcy ...
Expressing the sense of the Congress that the bankruptcy proceedings of Lehman Brothers Holding Inc. and Lehman Brothers Europe Inc. be resolved in an equitable and expeditious process between the United States and United Kingdom, and that the interests of American investors be given due consideration and be treated with urgency throughout.
(September 12, 2009)
Bill Introduced: S.1663 A bill to make available funds from the Emergency Economic ...
A bill to make available funds from the Emergency Economic Stabilization Act of 2008 for funding a voluntary employees' beneficiary association with respect to former employees of Delphi Corporation.
(September 9, 2009)
Bill Introduced: S.1624 Medical Bankruptcy Fairness Act of 2009
A bill to amend title 11 of the United States Code, to provide protection for medical debt homeowners, to restore bankruptcy protections for individuals experiencing economic distress as caregivers to ill, injured, or disabled family members, and to exempt from means testing debtors whose financial problems were caused by serious medical problems, and for other purposes.
(August 4, 2009)

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Articles

The Principle against Divestiture and the Pari Passu Fallacy
Butterworths Journal of International Banking and Financial Law, Vol. 25, No. 1, p. 3, 2010 Look Chan Ho Freshfields Bruckhaus Deringer LLP Date Posted: January 25, 2010 Last Revised: February 6, 2010
(February 5, 2010)
Keynote Address: The Role of Lawyers in the Global Financial Crisis
Australian Journal of Corporate Law, Forthcoming Steven L. Schwarcz Duke University - School of Law Date Posted: January 8, 2010 Last Revised: February 6, 2010
(February 5, 2010)
International Developments in Consumer Financial Services Law 2007-2008
Business Lawyer , Vol. 64, 2009, William Mitchell Legal Studies Research Paper No. 2009-07 Gregory M. Duhl William Mitchell College of Law Date Posted: February 2, 2010 Last Revised: February 6, 2010
(February 5, 2010)
If You Misrate, then You Lose: Improving Credit Rating Accuracy Through Incentive Compensation
Yale Journal on Regulation, January 2010 Yair Listokin and Benjamin Taibleson Yale Law School and Yale Law School Date Posted: January 15, 2010 Last Revised: February 6, 2010
(February 5, 2010)
The Roles of Acceleration
David Hahn Bar Ilan University, Faculty of Law Date Posted: February 5, 2010 Last Revised: February 5, 2010
(February 4, 2010)

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