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What exactly is 'bankruptcy'?
What exactly is 'bankruptcy'?
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 Bankruptcy occurs when a debtor (a person, business or government unit that owes money) stops making some or all payments to creditors (persons, businesses or government units that have lent out money). The law governing bankruptcies in the US is found in Title 11 of the United States Code (the Bankruptcy Code). The Code was amended in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the BAPCPA). Other Titles of the United States Code also pertain to bankruptcies, such as Title 18 of the United States Code which concerns bankruptcy crimes and Title 26 of the US Code (the Internal Revenue Code) which concerns tax aspects of bankruptcy. The Bankruptcy code is divided into several chapters, such as Chapter 7, 11, 12, 13 and 15, and a particular bankruptcy falls under one of these chapters depending on the nature of the bankrupt (such as an individual person or a business) and the nature of the bankruptcy plan (such as a complete liquidation or a reorganization). Bankruptcy can be either voluntary (when the debtor chooses to file themselves) or involuntary, when creditors force bankruptcy. Federal law governs most facets of bankruptcy, but each state has individual procedures that relate to the property of bankrupt entities. It is important to be cognizant of the appropriate state rules.
Published on BankingQuestions.com 11/21/08
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