Bankruptcy in the United States

Bankruptcy Definition

The state or condition of a bankrupt. A state of insolvency (in U.S. law) in which the property of a debtor is taken over by a receiver or trustee in bankruptcy for the benefit of the creditors. See other definition of Bankruptcy in the Legal Dictionary here. Browse and search more U.S. and international free legal definitions and legal terms related to Bankruptcy.

Proceedings

A process for freeing persons from some liability for debts. Bankruptcy proceedings are governed by federal law, specifically the Bankruptcy Act and amendments to it. Commencement of the bankruptcy process may come at the initiative of the debtor or a group of creditors. Such proceedings are conducted by bankruptcy courts, which are an arm of the United States District Courts (see). Bankruptcy referees have historically been selected by district court judges. In 1984, Congress enacted new legislation that leaves bankruptcy matters with the district court but provides that bankruptcy judges be appointed to 14-year terms by the court of appeals for the circuit in which the district is located. Some cases under the Bankruptcy Act are handled as “straight” bankruptcy, where a trustee liquidates certain specified assets of the debtor and distributes the proceeds among the creditors. The act also has what are called “rehabilitative” provisions (Chapters 11 and 13), which allow a debtor to reorganize instead of liquidate in hopes of paying off accumulated debts with future earnings under reorganization. The act protects the debtor during the course of such an attempt. (1)

Analysis and Relevance

Bankruptcy proceedings allow persons or businesses to free themselves from accumulated indebtedness they could never pay off. Such protection has existed in some form since early in American history when a number of states enacted insolvency laws. While states may still legislate in the area, federal law supercedes state law at any point of conflict. Bankruptcy matters under the several federal Bankruptcy Acts (1898, 1933, 1978, and 1984) historically were handled by the U.S. district courts as part of their equity jurisdiction. As the volume of cases grew, district judges delegated these cases to referees.

In 1978, Congress sought through the Bankruptcy Reform Act to create an independent bankruptcy court using the Article I power to create legislative courts. This act was struck down by the Supreme Court in Northern Pipeline Construction Company v. Marathon Pipe Line Company (458 U.S. 50: 1982). The Court ruled in this case that the task assigned to bankruptcy judges by the act could only be performed by judges possessing the independence associated with constitutional or Article Ill-derived courts. A revised version of the law was eventually passed in 1984, which created bankruptcy courts as sub-units of the district courts. Under the law, bankruptcy judges are now selected by the court of appeals and generally have exclusive control over bankruptcy cases. In certain situations, bankruptcy judges submit their findings to district judges who, in turn, enter final judgments. Nonetheless, the role of the bankruptcy judge has broadened, and the change represents dispersing some powers of the district courts to other units. (2)

Bankruptcy Traditionally

Voluntary Bankruptcy

Voluntary bankruptcy is brought about by the filing of a petition in bankruptcy by the debtor. The form of the petition is prescribed by the act. By filing a voluntary petition, debtors seek, first, to have their assets equally distributed among all creditors, and, second, to free themselves of debt. They are thus able to begin business life anew, unencumbered. Voluntary bankruptcy is open to all individuals, firms, and corporations, except banking, building and loan, insurance, railroad, and municipal corporations. No special amount of indebtedness is required; a person owing one dollar or several millions may file a petition in voluntary bankruptcy.

Involuntary Bankruptcy

Involuntary bankruptcy is brought about by the filing of a petition by the creditors against an insolvent debtor. If there are fewer than 12 creditors, 1 creditor may file the petition; if there are more than 12, 3 creditors must join in the filing. Before creditors can throw a debtor into bankruptcy, the following conditions must exist: 1. The debtor must owe the creditors filing the petition at least $5,000 more than the value of the liens the creditors hold on the debtor’s property. 2. The debtor must have committed an act of bankruptcy within four months preceding the filing of the petition. Involuntary bankruptcy proceedings cannot be brought against a wage earner, a farmer, or a banking, building and loan, insurance, railroad, or municipal corporation.

Steps in bankruptcy proceedings

After a petition is filed in the federal courts, in a form prescribed by the United States Supreme Court, the basic steps are: (1) application for receiver, (2) adjudication of the bankrupt, (3) referral to referee in bankruptcy, (4) filing of schedules by the bankrupt, (5) meetings of creditors, (6) election of trustee in bankruptcy, (7) proof and allowance of claims, and (8) discharge of the bankrupt.

Referee in bankruptcy

When the court signs a decree of adjudication it refers the case to a “referee” in bankruptcy. The referee, who is a lawyer, acts in place of the bankruptcy court, conducts all the usual proceedings, and grants the final discharge of the bankrupt from further liability for his or her debts. The referee presides over all creditors’ meetings.

Filing of schedules by the bankrupt

Within five days after the debtor has been adjudged bankrupt he must file, in involuntary cases, a schedule of assets and liabilities on a form prescribed by the United States Supreme Court. If a voluntary petition is filed, the debtor must accompany the petition with similar schedules.

Legal Materials

Topics are grouped by material type.

Case Law: To find cases interpreting bankruptcy law, look under the relevant section of the Bankruptcy Code in the USCA, USCS or CCH’s Bankruptcy Law Reporter. Or look under the relevant subject in West’s Bankruptcy Digest. Of course you can also do standard searches in bankruptcy case databases on Lexis, Westlaw, etc.

See also “Bankruptcy Appellate Panels” and “United States Bankruptcy Courts” in this Encyclopedia.

Docket sheets: See the “Filings” section of this entry, following, or the separate entry for “Docket Sheets.”

Filings: To see if a company has very recently filed for bankruptcy in the U.S.: search the PACER Case Locator and/or the PACER site for the relevant bankruptcy court. Note: There can be up to week delay before a new case make it into the PACER system. Other low- or no-cost options: Search newswires and other news sources (discussed below); visit the company Web site; call the company and/or call the relevant court. If you are looking further back, you can check the Troubled Company Reporter News Archive (going back to 1994) for U.S. companies with at least $10 million in assets, or search the Reporter on Lexis (BKRTCY;TCRPTR) if you don’t know the date of the filing.

To do a more general background check on whether a company has filed for bankruptcy, check the PACER Case Locator or search PACER data using one of the commercial services discussed in the “Docket Sheets” entry of this Guide. Or try the free search on BankruptcyData.com for major company bankruptcies since 1986.

You can also search the relevant database on Lexis, Westlaw (BKR-ALL), Accurint,TLO and/or KnowX.com. Also, bankruptcy information is included in a D&B Business Information Report (see information about them in this legal Encyclopedia).

Important: Bankruptcy information is subject to legal time restrictions, so be sure to find out how far back your search can take you.

Services that run regular bankruptcy filing alerts include Courthouse New Service, the Troubled Company Reporter, Lexis and Westlaw.

Financing Agreements: When a bankrupt company needs to borrow money, lenders are likely to want a court-approved Debtor-in-Possession Financing Agreement (“DIP Financing”) under 11 USC 364 and Bankruptcy Rule 4001(c). These agreements give the lender top priority if the company falters.

You can get DIP Financing Agreements for a particular company from the online case file (on PACER or one of the other systems discussed in the Docket Sheets entry. The agreement should be an attachment to the Motion for Approval. If you just want a sample, a few of these are filed as Exhibits to SEC Filings, so you can search for them on LIVEDGAR or another SEC filing database (see the the SEC Filing entry in this legal Encyclopedia).

Forms: The U.S. Courts post the Official Bankruptcy Forms. The Official Forms are published in the Appendix to Title 11 of the U.S. Code. They are also available in CCH’s Bankruptcy Law Reporter.

Laws: U.S. bankruptcy laws are codified in Title 11 of the United States Code and, hence, are available in the USCA, USCS and wherever else the USC is available (see “United States Code“). The current and former Bankruptcy Act, plus related laws are published in CCH’s Bankruptcy Law Reporter. The American Bankruptcy Institute posts “Legislative News.”

For foreign sources, see the “Foreign Laws” entry and the entries for individual countries. Note: The Practical Law Company provides summaries of the Restructuring and Insolvency laws of many foreign countries.

News: Bankruptcy news is available from in The Daily Bankruptcy News, the The Daily Bankruptcy News and BNA’s Bankruptcy Law Reporter. The Troubled Company Reporter covers large company bankruptcies.

For research, the Dow Jones Corporate Filings Alert (formerly Federal Filings) is available on Lexis (FACTVA;DJCORP) and Westlaw (FEDFILE). The Troubled Company Reporter is available on Lexis (BKRTCY;TCRPTR). Also, top news is posted free by BankruptcyData.com. Other resources: Search the general news databases.

Rankings: The April issue of The American Lawyer includes a list of the biggest deals of the preceding year, including the 10 largest bankruptcies in the U.S. Bankruptcydata.com posts a list of the largest U.S. bankruptcies since 1995, as well as a list for each year. The Practical Law Company compiles a list of the “best” bankruptcy firms called the “Restructuring and Insolvency Super League.”

Reports: The ABI Resource Center posts bankruptcy-related reports by government agencies. The Administrative Office of the United States Courts publishes the number of cases filed with the bankruptcy courts (and other bankruptcy court information) in its Statistical Reports. NR&C designs custom reports using data from Chapter 11 bankruptcies.

Rules: See “Federal Court Rules” and/or “Federal Rules of Bankruptcy Procedure.”

Statistics: The Administrative office of the U.S. Courts posts statistics on U.S. bankruptcy filings. You can create your own reports on large public company bankruptcies using the Web BRD.

Troubled Companies: There is no precise way to know if a company is about to go into bankruptcy, but you can (a) for large companies (assets of US$10+ million) check theTroubled Company Reporter, which is available on Lexis (BKRTCY;TCRPTR); (b) run the company’s name through a current business news database, (c) get a Dun & Bradstreet report on the company (see “Dun & Bradstreet Reports”), (d) check for outstanding liens, judgments and notices of default on Accurint, TLO, Lexis or Knowx.com or another public records database, (e) for public companies, look at the latest 10-Q filed with the Securities and Exchange Commission (see “Securities and Exchange Commission”); or (f) look for the company’s name on Downside’s Deathwatch or another site that reports rumors of trouble.

Treatises, etc.: The leading bankruptcy treatise is Collier on Bankruptcy(Lexis/Matthew Bender), which has a companion, the Collier Bankruptcy Practice Guide. Collier on Bankruptcy is available on Lexis (BKRTCY;COLBKR), as is thePractice Guide (BKRTCY;COBAPG). Also useful: Norton Bankruptcy Law and Practice(West). The Practical Law Company provides detailed summaries of major bankruptcy topics and explains how to handle selected key aspects of bankruptcy practice (subscription only).

Bankruptcy in Foreign Legal Encyclopedias

For starting research in the law of a foreign country:

Link	Description
Bankruptcy	Bankruptcy in the World Legal Encyclopedia.
Bankruptcy	Bankruptcy in the European Legal Encyclopedia.
Bankruptcy	Bankruptcy in the Asian Legal Encyclopedia.
Bankruptcy	Bankruptcy in the UK Legal Encyclopedia.
Bankruptcy	Bankruptcy in the Australian Legal Encyclopedia.

Bankruptcy in Constitutional Law

A list of entries related to Bankruptcy may be found, under the Bankruptcy category, in the United States constitutional law platform of this legal Encyclopedia.Bankruptcy provides debt relief to individuals and businesses that have too much debt for them to handle.

Chapter 7 Bankruptcy (in General)

(In United States law, in the context of Bankruptcy) Chapter 7 bankruptcy is a liquidation bankruptcy in which most of the debtor’s debt is wiped out, giving the debtor a fresh start.

Exempted Property

Note: Find out more information about this topic in this American legal Encyclopedia. The bankruptcy trustee can only liquidate assets that are not exempt under state or federal law.

Eligibility for Chapter 7 Bankruptcy Filing

Note: Find out more information about this topic in this American legal Encyclopedia. Not everyone is eligible to file for Chapter 7 Bankruptcy, including those who have received a discharge in bankruptcy within the last six to eight years, depending on the chapter under which they filed.

Determining whether the debtor’s income is below the median income

Note: Find out more information about this topic in this American legal Encyclopedia. The first determination is determining whether the debtor’s income is less than the median income of a family of the same size in the same state as the debtor.

Means Test

Note: Find out more information about this topic in this American legal Encyclopedia. The means test helps to ensure that only individuals who cannot afford to pay off their debts are able to use Chapter 7 bankruptcy.

Bankruptcy Trustee

Note: Find out more information about this topic in this American legal Encyclopedia. The court appoints a bankruptcy trustee who is responsible for ensuring that the creditors receive as much as possible of the unpaid debt that is owed to them.

Automatic Stay

Note: Find out more information about this topic in this American legal Encyclopedia. One of the most coveted aspects for debtors filing for Chapter 7 bankruptcy is the automatic stay. Once the bankruptcy is filed, the court issues an automatic stay that prevents creditors from trying to collect on the debt.

Creditors’ Meeting

Note: Find out more information about this topic in this American legal Encyclopedia. Part of the bankruptcy process includes a creditors’ meeting in which all of the creditors listed in the bankruptcy papers have an opportunity to attend.

Chapter 13 Bankruptcy (in General)

(In United States law, in the context of Bankruptcy) The second most common type of bankruptcy filing is for Chapter 13. Chapter 13 bankruptcy is often filed by debtors who do not qualify for Chapter 7 bankruptcy due to being over the median income or not passing the means test.

Eligibility for Chapter 13 Bankruptcy

Note: Find out more information about this topic in this American legal Encyclopedia. Not all debtors qualify for Chapter 13 bankruptcy. Debtors must be able to show that they have sufficient income to meet their payment obligations under the bankruptcy repayment plan.

Repayment Plans

Note: Find out more information about this topic in this American legal Encyclopedia. The debtor’s repayment plan details the manner in which the debtor will repay debts, including how much repayments will be and the duration of the repayment plan.

Credit Counseling

Note: Find out more information about this topic in this American legal Encyclopedia. Debtors are required to attend sanctioned credit counseling. This agency must be approved by the United States Trustee’s Office.

Chapter 11 Bankruptcy (in General)

(In United States law, in the context of Bankruptcy) Chapter 11 bankruptcy is primarily for reorganizing businesses that have large debt burdens. The goal of filing for Chapter 11 bankruptcy is to return the business to a profitable one.

Legal Assistance (in General)

(In United States law, in the context of Bankruptcy) Filing for bankruptcy can be a complex matter with long-lasting consequences. Individuals and businesses that are contemplating this decision may wish to discuss their options with a bankruptcy lawyer.

Bankruptcy: Summary

In this entry, Bankruptcy covers:

Cultural Philosophy
Bankruptcy Petitions
The Bankruptcy Trustee
Chapter 11 Bankruptcies
Recent Trends in Bankruptcy Law

Bankruptcy: Main Elements

The coverage of Bankruptcy includes the following main elements:

Cultural Philosophy

Find out an overview of this topic, in relation to Bankruptcy, in the legal Ecyclopedia.

Bankruptcy Petitions

There is information on this basic subject in the legal Ecyclopedia.

The Bankruptcy Trustee

Find out an overview of this issue following this link (topic).

Chapter 11 Bankruptcies

There is information on this basic subject matter in this legal reference.

Recent Trends in Bankruptcy Law

Find out an overview of this topic in the legal Ecyclopedia.

References

Main Elements

Bankruptcy Defined

Bankruptcy allows individuals, couples, and businesses that cannot meet their financial obligations to be excused from repaying some or all of their debt. Bankruptcy has been in existence since ancient times.

Keep their Property

The fact that a liquidation bankruptcy wipes out debt completely is obviously attractive to anyone who cannot afford to pay their bills. But what about people who have non-exempt property that they do not want to give up? Chapter 13 is a reorganization bankruptcy.

Bankruptcy Act of Actions (Adversary Proceedings)

This section introduces, discusses and describes the basics of bankruptcy act of actions. Then, cross references and a brief overview about Adversary Proceedings is provided. Finally, the subject of Proceedings in relation with bankruptcy act of actions is examined. Note that a list of cross references, bibliography and other resources appears at the end of this entry.

Bankruptcy Act of Actions (Adversary Proceedings)

This section introduces, discusses and describes the basics of bankruptcy act of actions. Then, cross references and a brief overview about Adversary Proceedings is provided. Finally, the subject of Practice in relation with bankruptcy act of actions is examined. Note that a list of cross references, bibliography and other resources appears at the end of this entry.

Bankruptcy (Admiralty Law)

This section introduces, discusses and describes the basics of bankruptcy. Then, cross references and a brief overview about Admiralty Lawin relation to bankruptcy is provided. Note that a list of bibliography resources and other aids appears at the end of this entry.

Finding the law: Bankruptcy in the U.S. Code

A collection of general and permanent laws relating to bankruptcy, passed by the United States Congress, are organized by subject matter arrangements in the United States Code (U.S.C.; this label examines bankruptcy topics), to make them easy to use (usually, organized by legal areas into Titles, Chapters and Sections). The platform provides introductory material to the U.S. Code, and cross references to case law. View the U.S. Code’s table of contents here.

Bankruptcy

In Legislation

Bankruptcy in the U.S. Code: Title 11

The current, permanent, in-force federal laws regulating bankruptcy are compiled in the United States Code under Title 11. It constitutes “prima facie” evidence of statutes relating to Bankruptcy (including bankruptcy) of the United States. The reader can further narrow his/her legal research of the general topic (in this case,
Bankruptcy Reorganization and Adjustment of Debts and Bankruptcy Cross-Border Cases of the US Code, including bankruptcy) by chapter and subchapter.

Bankruptcy

In Legislation

Bankruptcy in the U.S. Code: Title 18, Part I, Chapter 9

The current, permanent, in-force federal laws regulating bankruptcy are compiled in the United States Code under Title 18, Part I, Chapter 9. It constitutes “prima facie” evidence of statutes relating to Crimes and Criminal Law (including bankruptcy) of the United States. The readers can further narrow their legal research on the topic by chapter and subchapter.

Resources

Notes and References

Definition of Bankruptcy from the American Law Dictionary, 1991, California

Bankruptcy and Tax Law

There are more details about Bankruptcy in thetax compilation of the legal Encyclopedia.

Bankruptcy Definition in the context of the Federal Court System

A legal process—over which the federal courts have exclusive jurisdiction—by which persons or businesses unable to pay their debts can seek the assistance of the court in liquidating and reorganizing their assets and liabilities. Under the protection of the bankruptcy court, debtors may discharge their debts. Bankruptcy judges preside over these proceedings.

Bankruptcy

Bankruptcy in the United States

Bankruptcy Definition

Proceedings

Analysis and Relevance

Bankruptcy Traditionally

Voluntary Bankruptcy

Involuntary Bankruptcy

Steps in bankruptcy proceedings

Referee in bankruptcy

Filing of schedules by the bankrupt

Legal Materials

Bankruptcy in Foreign Legal Encyclopedias

Bankruptcy in Constitutional Law

Chapter 7 Bankruptcy (in General)

Exempted Property

Eligibility for Chapter 7 Bankruptcy Filing

Determining whether the debtor’s income is below the median income

Means Test

Bankruptcy Trustee

Automatic Stay

Creditors’ Meeting

Chapter 13 Bankruptcy (in General)

Eligibility for Chapter 13 Bankruptcy

Repayment Plans

Credit Counseling

Chapter 11 Bankruptcy (in General)

Legal Assistance (in General)

Bankruptcy: Summary

Bankruptcy: Main Elements

Cultural Philosophy

Bankruptcy Petitions

The Bankruptcy Trustee

Chapter 11 Bankruptcies

Recent Trends in Bankruptcy Law

References

See Also

Main Elements

Bankruptcy Defined

Keep their Property

Bankruptcy Act of Actions (Adversary Proceedings)

Bankruptcy Act of Actions (Adversary Proceedings)

Bankruptcy (Admiralty Law)

Finding the law: Bankruptcy in the U.S. Code

Bankruptcy

In Legislation

Bankruptcy in the U.S. Code: Title 11

Bankruptcy

In Legislation

Bankruptcy in the U.S. Code: Title 18, Part I, Chapter 9

Resources

Notes and References

See Also

Further Reading (Books)

Further Reading (Articles)

More Related Articles

Further Reading

Bankruptcy and Tax Law

Bankruptcy Definition in the context of the Federal Court System

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