Part 6- Credit, Chapter 30: Bankruptcy, Doc 1

This chapter focuses on bankruptcy laws, illustrated by the financial struggles of Bob and Sue Brown, who face severe debt and potential foreclosure after job loss and an accident. Their story raises several key bankruptcy questions, such as the types of assets they might retain, the debts eligible for discharge, and the benefits and drawbacks of filing under Chapter 7 (liquidation) versus Chapter 13 (debt adjustment). Key Topics and Learning Objectives The chapter provides an overview of: 1. Bankruptcy Code – A federal law to manage the fair distribution of assets and protect honest debtors. 2. Types of Bankruptcy – The main types include liquidation (Chapter 7), reorganization (Chapter 11), family farm adjustments (Chapter 12), and consumer debt adjustments (Chapter 13). 3. Chapter 7 Procedures – Initiating a liquidation involves filing a petition, either voluntarily by the debtor or involuntarily by creditors. The court and a trustee handle the process, liquidating non-exempt assets and distributing proceeds among creditors. 4. Asset Exemptions – Some assets are exempt from the bankruptcy estate, allowing debtors to retain necessary property. 5. Claims Management – Differentiates between secured, priority, and allowable claims, guiding the distribution order in asset liquidation. 6. Debt Discharge – Explains which debts are dischargeable and which (like taxes or child support) are not. 7. Automatic Stay – Filing a petition halts most creditor actions, though certain exceptions exist, such as for domestic support obligations and certain eviction cases. Key Bankruptcy Proceedings 1. Liquidation (Chapter 7) – Aimed at individuals or businesses unable to repay debts. Non-exempt assets are sold, and creditors are paid in order of their claim priority. Debtors may receive a discharge if they comply with procedural honesty. 2. Reorganization (Chapter 11) – Typically for businesses, allowing debt restructuring to continue operations. The debtor proposes a repayment plan under court oversight. 3. Family Farm Adjustments (Chapter 12) – Supports family farmers or fishermen in restructuring their debt while continuing operations. 4. Consumer Debt Adjustments (Chapter 13) – For individuals with stable income, enabling them to propose a plan to pay creditors over time rather than liquidating assets. Court and Trustee Roles Bankruptcy courts operate within federal district courts, with appointed bankruptcy judges presiding. Trustees manage the debtor’s estate by assessing assets, filing objections, and ensuring fair asset distribution. Trustees also manage “automatic stays,” protecting debtors from certain creditor actions. Recent Legal Changes The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 introduced measures like:    Means Test: Ensures Chapter 7 is used by those genuinely unable to pay debts. Debtors above a certain income level may be required to file under Chapter 13. Credit Counseling Requirement: Debtors must complete a counseling session before filing, covering debt management options. Attorney Certification: Attorneys must verify the accuracy of information in petitions, potentially facing penalties for inaccuracies, which may discourage some lawyers from high-volume bankruptcy cases. The chapter explains how bankruptcy provides a structured process for debt resolution, balancing the interests of both creditors and debtors, especially in cases like the Browns’ where unforeseen hardships disrupt financial stability.