Bankruptcy

By Daisy Rogozinsky
/
May 31, 2022

If you’re filing for bankruptcy, you may encounter a number of new terms you don’t understand. To help you out, this article defines the terms bankruptcy, bankruptcy administrator, Bankruptcy Code, bankruptcy court, bankruptcy estate, bankruptcy judge, and bankruptcy petition. 

Key Takeaways

  • Bankruptcy is a legal proceeding freeing a person from paying debts they owe 
  • A bankruptcy administrator oversees bankruptcy cases to assure no party behaves fraudulently
  • The US. Bankruptcy Code governs matters related to bankruptcy
  • The bankruptcy court is a U.S. federal court that handles all bankruptcy cases
  • A bankruptcy estate is all of the property a debtor owns when they file for bankruptcy
  • A bankruptcy judge is a U.S. judge who has jurisdiction over bankruptcy matters
  • A bankruptcy petition is a form that a debtor must fill out to begin the bankruptcy process
  • Many liability debts can be discharged during bankruptcy proceedings

What Is Bankruptcy?

Bankruptcy is a type of legal proceeding for a person or business unable to pay their debts. The goal of bankruptcy proceedings is to free a person from their debt while providing their creditor(s) an opportunity for repayment. However, while it gives debtors a fresh start, it is also recorded in their credit reports, making it difficult for them to receive loans in the future. 

The bankruptcy process usually begins when a debtor files a bankruptcy petition. Then, their assets are measured and evaluated and used to repay a portion of their outstanding debts. 

Bankruptcy is handled in federal court and governed by the Bankruptcy Code. There are multiple types of bankruptcy:

  • Chapter 7, in which the debtor’s assets are liquidated
  • Chapter 11, in which a company or individual reorganizes in order to remain in business and become profitable again 
  • Chapter 13, in which individuals or businesses create workable debt repayment plans

What Is a Bankruptcy Administrator?

A bankruptcy administrator, also called a bankruptcy trustee, is appointed by the court to be in charge of a particular bankruptcy case. Their role is to monitor the interactions between the debtor and creditors to ensure that no party is behaving fraudulently. Bankruptcy administrators are typically government employees, attorneys, or accountants by trade. 

What Is the Bankruptcy Code?

The U.S. Bankruptcy Code is the code governing matters related to bankruptcy. It was developed in the 1960s and 1970s with the Bankruptcy Reform Act of 1978. While the Bankruptcy Code is federal, there are many state exemptions to it. 

Various chapters of the Bankruptcy Code concern:

  • Chapter 7 governs liquidation
  • Chapter 9 governs the adjustment of debts of a municipality
  • Chapter 11 governs corporate reorganization
  • Chapter 12 governers the adjustment of debts or family farmers
  • Chapter 13 governs wage earners’ bankruptcy

What Is Bankruptcy Court?

The term bankruptcy court refers to specialized federal courtrooms settling all personal and corporate bankruptcy cases. The bankruptcy court system was established by Congress in 1978 as part of the Bankruptcy Reform Act. 

What Is a Bankruptcy Estate?

A debtor’s bankruptcy estate is all of the property they own when they file for bankruptcy, except for most pensions and educational trusts.

The following assets are included in a bankruptcy estate:

  • Property in the debtor’s possession
  • Debtor’s property in someone else's possession, such as items they have loaned to others
  • Property the debtor has recently given away
  • Property the debtor hasn't yet received but is entitled to
  • Proceeds from the debtor’s property such as rental income
  • Certain assets the debtor receives within 180 days after filing such as inheritance and lottery winnings
  • The debtor's share of marital property

What Is a Bankruptcy Judge?

A bankruptcy judge is a federal judicial officer of a United States district court who is appointed by the majority of judges of the U.S. court of appeals. Bankruptcy judges have jurisdiction over bankruptcy mattesr. As of 2019, there were 347 bankruptcy judges. 

What Is a Bankruptcy Petition?

The bankruptcy process begins when a debtor files a bankruptcy petition. The bankruptcy petition consists of forms disclosing all of their financial information.

There are four types of bankruptcy petitions:

  • Voluntary Petition for Individuals Filing for Bankruptcy
  • Voluntary Petition for Non-Individuals Filing for Bankruptcy
  • Involuntary Petition Against an Individual
  • Involuntary Petition Against a Non-Individual

Bankruptcy and Liability

Filing for bankruptcy can discharge a number of liability claims, or debts owed for damages owed to another party. All liability claims are dischargeable in bankruptcy unless something in the Bankruptcy Code states otherwise. 

Exceptions to bankruptcy discharge include:

  • Debts based on fraud
  • Liability owed for willful or malicious injuries
  • Liability for injuring somebody while driving under the influence

Featured Bankruptcy Lawyers

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