New Bankruptcy Provisions In The US
Bankruptcy is recognized by the US Constitution and it empowers the Congress to legislate on this subject for the whole of US. These cases are taken up by the US Bankruptcy courts and the federal laws govern the same. However, in certain cases involving the determination of property rights, due consideration is also given to the state laws. Some main types of bankruptcies in the US are dealt under the following chapters:
1. Chapter 7: It is the liquidation of the assets. In this, the trustee is appointed and he takes stock of all the assets. He sells the same and distributes the proceeds to the creditors. The state laws give protection to the debtors by allowing them to keep certain essential properties. So, in effect, the liquidation is of properties other than these assets.
2. Chapter 9: This chapter deals with the reorganization of municipalities rather than their liquidation.
3. Chapter 11, 12, 13: Chapter 12 is applicable only to ‘family fishermen’ and ‘family farmers’. These chapters allow the debtor to retain some of his properties and use his future income to pay off the debts.
4. Chapter 15: It deals with the bankruptcy of those foreign entities which have US funds.
With people increasingly using the chapter 7 bankruptcy provisions to get themselves bankrupt and start afresh from scratch after wading off the creditors, the laws have been amended to make stricter eligibility norms for applying for chapter 7. The people with higher incomes (determined in accordance with a set procedure) are required to first pay off some part of their debt under chapter 13 before they can apply under chapter 7.
Another important change is about the mandatory counseling requirements before filing for the bankruptcy. The counseling has to be done with a government approved agency which will counsel whether bankruptcy is required to be filed or the repayment plan can be worked out. If it does prepare a repayment plan, you need not pursue it but it is required in the court of law.
The counseling is required not only before the filing but also after the verdict. This one is about the financial management so that the person knows how to manage the funds when he begins afresh.
And, the changes also seek to make the lawyers more accoun
