Bankruptcy: The Constitutional Avenue to Settle Debt

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 2 min read

Bankruptcy in the United States is a constitutionally (Article 1 Section 8, Clause 4 to be exact) approved way for business entities and individuals to settle big amounts of debt. Congress is in charge of making the bankruptcy laws. The most recent change was an amendment to existing laws through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. For other laws relevant to bankruptcy, turn to the United States Code.

Bankruptcy cases are filed in United States Bankruptcy Court, so federal law will govern the procedure in bankruptcy cases. But state laws are also applied when property rights are being determined. Example: rules that protect property from creditors (the people you owe money to) will come from state law.

Bankruptcy comes in a number of forms, or Chapters. Title 11 of the United States code contains nine chapters. Six of these will require you to file a petition. The remaining three have rules to govern these petitions.

Chapter Seven is the most well known form of bankruptcy. This involves a trustee who is appointed to obtain the property of the debtor that is not protected by law. Then, they sell it and distribute the proceeds to the creditors. Every state lets debtors keep essential property, so most Chapter 7 cases will let the debtor keep all of their property.

A Chapter Nine bankruptcy is available only to municipalities. It’s not a form of liquidation, rather its a form or reorganization. One famous example of this was when Orange County, California’s Chapter Nine bankruptcy. Bankruptcy under Chapter 11, Chapter 12, or Chapter 13 is more complex. It involves reorganization and letting the debtor keep some, or all of their property. They will utilize future earnings to pay off creditors. People usually file Chapter 7 or Chapter 13. Sometimes an individual will file for Chapter 11, but this is rare. Chapter 12 is similar to Chapter 13, but is only available to “family farmers” and “family fisherman” in some situations. Generally, chapter 12 has is more generous for debtors than a similar Chapter 13 case.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.