 US Bankruptcy Reform Bill Approved
The House of Representatives on 1 March 2001 voted in favour of changing the legislation covering the degree of write-off allowed to debtors in formal bankruptcy.
The bill, Bankruptcy Abuse Prevention and Consumer Protection Act of 2001, was originally vetoed by ex-President Clinton and means that debtors now spend longer periods discharging their debts and also caused a major reduction in the amount of assets allowed to debtors on bankruptcy.
Introduction
The purpose of any insolvency action is to treat creditor (those who are owed) and debtor (those who owe) in a way that is both fair and reasonable under the protection (from creditor action) and guidance of the Federal court, and your own State law.
For a debtor, insolvency will allow a 'clean slate' and an opportunity to continue building towards success, or in some cases, to leave everything behind you. For creditors, insolvency offers the hope of some degree of compensation that would become increasingly unlikely if the debtor was to continue without professional involvement.
Insolvency action can be initiated by a creditor (Involuntary Bankruptcy), or by the debtor (Voluntary Insolvency).
PERSONAL - (Individual, Consumer)
(i) Chapter 7 US Bankruptcy Code ( Bankruptcy in UK)
A 'trustee' (appointed by the State court and controlling all matters) will list debts (no minimum figure), all assets less those allowed to be retained under Federal or State law and. There is a variance between Federal and State allowances and the bankrupt has to choose which law is best suited: you are allowed to retain 'some' home equity, a low value car, home appliances, household goods (under $200 an item), tools of your trade (to $750), and your pension being the main items. No creditor can take action once an application is filed, with any ongoing creditor action becoming a claim within the bankruptcy.
The debtor will lose any property. The debtor will no longer have creditors when a final court hearing will discharge all debts*. Chapter 7 can only be filled every six-years: leaving Chapter 13 as the route of bankruptcy if insolvency strikes two or more times in six-years. It will take between 3 - 6 months from filing for bankruptcy to final discharge. A personal credit file will show a bankruptcy for 7 - 10 years from filing date.
* Some debts are NOT discharged by bankruptcy, and include: secured debts (incl. mortgage liens), taxes, fines (and debts from crime: i.e. fraud), undisclosed debts and libel damages. Creditor debts that remain from a Chapter 7, can be reduced by filing for Chapter 13 after the Chapter 7 discharge.
If the debtor has a regular income they can file for Chapter 13. A payment plan needs to be constructed by the debtor for acceptance by the court who will then appoint a 'trustee' - who controls all matters. Keeping the family home is an advantage of Chapter 13. An individual can file for Chapter 13 without a limit on time or occasions. Debts must be less than $1m.
CORPORATION (Company)
The company filing for bankruptcy stops trading immediately. The 'Trustee' (appointed by the court and controls all matters) is appointed to liquidate the company: this involves listing all creditors (government, suppliers, staff, investors) obtaining outstanding payments from debtors and deciding if any infringement of company or insolvency law has been breached, and if so, to compile a report on any breach.
Filing for Chapter 11 reorganization involves a plan, to be put before your creditors and the court, that outlines a survival strategy: with the court having the final say. The court will appoint a number of committees to oversee the plan: one must be the 'official committee of unsecured creditors' that will represent all unsecured creditors. Other committees can be authorized by the court for secured creditors or employees. The cost of a Chapter 11 can be prohibitive as the standards of administration and planning is necessarily high. A Chapter 11 can be converted into a Chapter 7 if the reorganization is not viable or payments are defaulted.
Note
A debtor that ordered goods or services up to 90 days prior to filing for Chapter 11, on an open term invoice (net 30 days), can recover all monies paid, or stop checks written as this period falls within the insolvent period. Goods delivered ten days or less prior to filing can be recovered by the supplier. Secured goods where identifiable and removable should be recoverable.
Important
A bankruptcy professional should be consulted in EVERY case. Our information is general and believed to be accurate at the time of writing. All situations are different and specific advice is needed to be of true benefit.
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