Bankruptcy Concept History and Evolution Term Paper

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It provided for fast proceedings, encouraged debtors to reschedule their obligations rather than liquidate and helped creditors recover their claims against bankrupt estates. The 1994 Act also created the National Bankruptcy Commission, charged with investigating further modifications of the bankruptcy law. Latter laws, however, disregarded many of the Commission's recommendations. In April 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Many experts consider this the most extensive rework of the U.S. bankruptcy law since 1978. The most important changes introduced in this Act concern individual bankruptcy cases, small business bankruptcies and cross-border insolvency cases (ABC Amega, Jackson).

II General Concept

Bankruptcy is governed by the Bankruptcy Code, which became effective in 1978 (Empowerment Zone 2007). It was amended in 1994 and then in 2005. The 2005 amendments formed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or BAPCPA. This Act ignited major changes for consumer bankruptcies and set into motion a few restrictive provisions for business bankruptcies. All bankruptcy cases must be filed with the federal Bankruptcy Court. It is monitored by a federal Bankruptcy Judge, who is appointed by the Circuit Court of Appeals. The Bankruptcy Judge may hear only bankruptcy cases. This is a specialized area of the law, which has its own set of courts and rules. These bankruptcy courts seem to maintain a kind of secret aura (Empowerment Zone).

Bankruptcy cases begin with the filing of a petition with the clerk of the Bankruptcy Court (Empowerment Zone 2007). The petition has two pages and identifies the debtor and the pertinent chapter of the Bankruptcy Code to apply. At the time of filing, an estate is created and all the debtor's assets are considered property of that estate. Everything before the filing is described as "pre-petition," and everything after it is described as "post-petition."

Who May File

Most anyone may file for bankruptcy (Empowerment Zone 2007). But if the court believes that the person who seeks it is abusing the law, it may deny the relief sought. Bankruptcy is a serious matter, which requires serious consideration. It has long-term serious consequence. The debtor should determine his personal and family needs, evaluate his assets against obligations, and consider alternatives to bankruptcy (Empowerment Zone).

Participation in Proceedings

In general, participants in bankruptcy proceedings are the debtor, the bankruptcy judge, the creditors, and the trustee (Empowerment Zone 2007).

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The debtor is the person seeking relief in the bankruptcy petition. He is also called petitioner. The bankruptcy judge is the judge who presides over the hearings. The creditors are persons, business entities or government agencies, which have monetary claims on the debtor. And the trustee is a court-appointed person who represents the interests of all unsecured creditors. He is accountable for the surrendered property of the debtor and for collecting and liquidating it. He also investigates the debtor's financial affairs, examines all of his proofs of claim, provides information to any interested party and files reports, certain tax returns and other records the court may require (Empowerment Zone).

Functions of the Bankruptcy Law

The Bankruptcy Law serves two main purposes (Consumer Education Center 2007). It provides a creditor with some payment if the debtor can afford to pay. Secondly, it gives the debtor a new start by canceling many of his debts according to a court-determined schedule of discharges (Consumer Education Center).

Kinds of Bankruptcy

Of those available to individuals, these are a liquidation type, a rehabilitation type for individuals or businesses, a rehabilitation type for individuals with regular sources of income, and a rehabilitation type for family farmers and fishermen (Consumer Education Center 2007). There is a rehabilitation type primarily for business debtors or individuals with huge debts and assets. The liquidation and the rehabilitation type for individuals with regular sources of income are the most important types for consumers. Both types offer or make possible payments to the creditor, a discharge for the debtor and supervision by a trustee. The liquidation type involves surrendering some of the debtor's property, at least theoretically, in exchange for the discharge of many debts. The trustee sells his non-exempt property to pay the creditor. Under the rehabilitation type for individuals with regular sources of income, the debtor can keep his property but has to commit to a three-year-to-five-year repayment plan. As a result, he secures a discharge of most of the debts not paid in the plan. Under both types, creditor have to stop collection after the case is filed. The debtor is protected by "automatic stay," a relief, which is often temporary (Consumer Education Center).

Difference Between the Liquidation Type and the Rehabilitation Type for Individuals with Regular.....

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