Different Types of Personal Bankruptcy. Which Bankruptcy Type Do You Qualify for, or Can Afford?
This essay attempts a simple outline of the different types of bankruptcy available under the banruptcy code for American debtors, and the basic procedures and process involved in a debtor filing for personal bankruptcy for legal discharge of his or her debt.
BANKRUPTCY AS A CONSTITUTIONAL RIGHT.
Personal bankruptcy is a fundamental Constitutional right. Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies” for the benefit of debtors who are United States citizens. Under this grant of authority, Congress enacted today’s “Bankruptcy Code,” last significantly revised or amended in 2005. The Bankruptcy Code, which is codified as title 11 of the United States Code, is the uniform federal law that governs all bankruptcy cases. Hence, bankruptcy being a fundamental Constitutional right, debtors need a cheap low-cost alternative bankruptcy system to high lawyers fees, and need to be able to afford bankruptcy without lawyers, or with lawyers. The point is that the cost and fees of filing for bankruptcy should never be made to be so high as to be a bar or hindrance for qualified American debtors who need to file for bankruptcy. Could that mean having to file bankruptcy with no bankruptcy attorney – to assure it will be low-low cost bankruptcy? Yes, maybe. Atimes, when the circumstances warrant that to make it practicable for a debtor to be able to excercise or enjoy that fundamental citizenship right.
THE BASIC PROCEDURES OF THE BANKRUPTCY PROCESS
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and the local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.
There is a U.S. bankruptcy court for each “judicial district” that has been set up in the country. Each state has one or more districts, and there are 90 bankruptcy districts all across the whole country, with each of the bankruptcy courts generally having its own Clerk’s offices.
The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge; he or she is the judicial officer who presides over the given United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. In realistic and practical terms, however, much of the bankruptcy process is really not “judicial” or “legal” or even “financial” at all. But is, rather, merely ADMINISTRATIVE, both in nature and content, and is conducted, in fact, completely away from the bankruptcy courthouse. In deed, in cases dealing with the chapters 7, 12, or 13 types of bankruptcy (meaning largely the personal types of bankruptcy, as opposed to corporate or business types), and sometimes in chapter 11 cases, this administrative process is carried out by someone known as a “trustee” – a person who is not a bankruptcy judge or a court officer, but merely contracted by the court is to process and oversee the case.
Under the bankruptcy process, a debtor’s involvement with the bankruptcy judge is usually very limited. If you are a chapter 7 debtor (see below), for example, you typically will not appear in any bankruptcy court or judge’s courtroom, nor will you ever see the bankruptcy judge – unless, say, an objection is raised in your case by one of your creditors, an occurrence that is very uncommon. If you are a chapter 13 (see below) debtor, you would only have to appear before the bankruptcy judge at one point, only at a hearing as to the confirmation of your repayment plan. Generally, whether in a chapters 7, 12, or 13 type of case, the only formal proceeding at which a debtor is required appear or be personally present in a case, is what is called “the meeting of creditors.” Informally called the “341 meeting” because it is Section 341 of the Bankruptcy Code that mandated it, this meeting is held principally and primarily just so that the debtor’s creditors can question the debtor about their debts and property. This meeting is usually held, not in the court house or any judge’s chambers, but at usually at the offices of the U.S. trustee.
THE “FRESH START” MISSION AND GOAL OF THE BANKRUPTCY LAW & SYSTEM
Consistent with the original mandate of the U.S. Constitution that bankruptcy is a fundamental constitutional right, probably the single most fundamental goal and mission for which the federal bankruptcy laws are enacted by Congress, is to give debtors a financial “fresh start” from the burden of crushing debts. The U.S. Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:
[I]t gives to the honest but unfortunate debtoraa new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. [Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)].
