BANKRUPTCY LITIGATION IN USA
INTRODUCTION
A bankruptcy case is a special kind of a civil case, involving people or companies who can no longer pay their debts.
Congress has established a special court, called as the bankruptcy court to adjudicate bankruptcy matters. Bankruptcy protects both the debtors and creditors
HIERARCHY OF COURTS
???? US Supreme Court
???? The Circuit court of appeals
???? The district courts or bankruptcy appellate tribunal (BAP )
???? The bankruptcy courts
GOVERNING LAWS
???? Title 11 Federal rules of bankruptcy procedure
???? Title 18 Crimes?(sec.151 through 158 deals with bankruptcy fraud and other bankruptcy crimes). E.g.
???? Title 26 IRC Implication of tax avoidance
???? Title 28 Judiciary and judicial process
???? Federal rules of appellate procedure
???? Federal rules of Evidence.
BANKRUPTCY JUDGESHIPS
The judges to the bankruptcy courts are appointed by the judges of US circuit courts for such circuits for the period of 14 years. Currently there are 324 judgeships?in the US.
THREE MAIN CHAPTERS ON BANKRUPTCY
There are mainly three chapters under the bankruptcy law in USA.
Chapter 7: liquidation
Chapter 11: Reorganization
Chapter 13: Adjustment of debt of the persons, having regular income.
CHAPTER 7: LIQUIDATION
Bankruptcy under this chapter offers a fresh start for the individuals. In this chapter, most of the debtor?s property will be sold to raise the amount of the creditor. If the value of the asset is more than the debt owed, the remaining amount will be paid to the debtor.
After, 2005 enactment by the congress, it is mandatory to pass the Means test in order to qualify for the filing bankruptcy under chapter 7.
How the case move through under chapter 7
1. Petition
The case begins with the filing of voluntary petition with the clerk of the bankruptcy court. Debtor must also file the following documents shortly after filing the petition, they are
1. the list if creditors
2. the schedule of assets
3. the statement of financial affairs
If the debtor is not in position to pay the fees at once, he can request for payment in installments.
It is not necessary that always the creditor must file the petition. Even the creditors can initiate the bankruptcy proceedings; these are called as the involuntary petitions. If the debtor has not more than 11 creditors, then the one creditor can file an involuntary petition. If it is more than 12 creditors, three creditors must join together to file a petition.
2. Automatic stay
Once the petition filed before the bankruptcy court, there will be an automatic stay. It stays the suits, claims, appeals filed against one another before or after
3. Trustee selection
After filing a voluntary petition in the bankruptcy court, a notice will be sent to all the creditors. The creditors are required to be present at the trustee selection. Then the case will be assigned to bankruptcy judge and added to the docket of the US Trustee. US trustees maintains the list of case trustees.These case trustees will liquidate the debtor property at the auction or at the private transactions and collect the money, deposit it in the account maintained for that purpose.
4. Creditors meeting
It is also called as the Sec.341 meeting. Interim trustee?will preside over this meeting. After a notice issued to the creditors, creditors have to come before the court and attend the meeting. If the creditor is not found, it will be published in the newspapers on which date the creditors have to attend the court.
It is compulsory that the debtor must be present at the meeting. The debtor will be put under oath and he will be asked several questions by the creditors. The purpose of this meeting is get to know hidden assets or undervalued assets of the debtor. And finding out is there any claim by the debtor which would yield more money if pursued. And the goal is to accumulate more money for the bankruptcy estate.
5. Liquidation?of assets
After the creditors meeting, the case trustees will sell the asset of the debtor either at the auction or at he private transactions.
If the debtor is the business, it will cease to exist. If it is an individual he will be discharged. However certain debts are not dischargeable such as the alimony, taxes etc.
6. Collection of the bankruptcy estate
Once the assets are liquidated, case trustee will deposits the amount in the bank account, along with any other amount accumulated from the legal suits.
7. Distribution of the bankruptcy estate
After the deposit of amount in the account, the amount deposited will be distributed among the creditors.
Majority of the cases are no asset cases. If there are no assets to distribute then the case trustee will simply file before the court a report no assets to distribute.
Even if there is money to distribute, sometimes the creditors would not get the whole amount which is due to him by the debtors. Sometimes some creditor will get less, some creditors will get more.
The question arises in our mind is that, who will be paid first. At the stage of distribution, the administration of the estate such as the professional fees of the trustee, attorney or accountant appointed by the bankruptcy estate will be paid first.
8. Claims
There are two kinds of the claim and creditors in the bankruptcy. One is the Secured claims and other one is an unsecured claims. Secured claims are one that gives the creditor an interest in property as assurance of payment. For example people will mortgage house in secure of loans. If the loan is not paid there will be foreclosure and sale of the house. Holder of unsecured claims cannot look into any such payments.
Under unsecured claims are again divided into two: Unsecured priority claims and unsecured non priority claims. Unsecured creditors who have priority must be paid first before paying to unsecured non priority claims.
In Campbell v. Countrywide Home Loans, Inc.,?2008 U.S. App. LEXIS 21405 (5th Cir. October 13, 2008, Filed)
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sadanand naik -
About the Author:Sadanand Naik is a Law graduate from Mangalore University (2005), in Karnataka, India, and Upon graduation, Mr.Sadanand Naik served as a Assistant Lawyer for the Rajan D.Naik, Advocate Vasco-Da-Gama, Goa in India. Mr. Sadanand Naik then served as the Assistant Lawyer for the Advocate M.M.Jalisatgi,Honavar. Now he works as the Legal Assistant for one of the Leading LPO in bangalore.
Source: http://claiming-bankruptcy.mysurefinance.com/219/claiming-bankruptcy-bankruptcy-litigation-in-usa/
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