Bankruptcy
Bankruptcy allows entities (businesses, individuals, and married couples) to resolve their debts through the division of assets among creditors. As federal law, it applies throughout all 50 United States. Bankruptcy can allow a debtor to stay in business and use revenue generated to pay his or her debts or it can allow entities to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.
Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to "establish... uniform laws on the subject of Bankruptcy throughout the United States." - U.S. Constitution Article I, Section 8.
There are two types of Bankruptcy proceedings: Liquidation and Rehabilitation. A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy. Liquidation involves the appointment of a trustee who collects the property of the debtor, sells it and distributes the proceeds to the creditors. Bankruptcy under Chapters 11, 12, and 13 involves the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy is filed, creditors may not seek to collect outside of the proceeding. The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings.
Usually, a bankruptcy settlement will appear on your credit report for 10 years.
Bankruptcy proceedings are supervised by and litigated in the United States Bankruptcy Courts. These courts are a part of the District Courts of The United States. The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings. Proceedings in bankruptcy courts are governed by the Bankruptcy Rules which were promulgated by the Supreme Court under the authority of Congress.
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