Wednesday, June 13, 2012


Thanks for taking the time to check out a blog whose topic probably seems boring and depressing to a lot of people. My goal here is to show that bankruptcy can actually be very practical and interesting, and for many people it instills a sense of relief, rather than depression.

Just to make it clear, I am an individual, not a bank. I am also a law student, in the summer before my 3L year at the Catholic University of America's Columbus School of Law in Washington, D.C. Unfortunately, I seem to be among the minority of students who have an interest in the topic of bankruptcy, but I have truly come to enjoy it as an academic and career interest; the other area of law in which I have substantial interest is the often-related field of tax law. 

My goal is to make this blog relatively devoid of legalese, and accessible to those without a knowledge of bankruptcy specifically, or law generally. The blog will not be carefully cited with footnotes throughout. I want to expose people generally to relevant, practical, and current topics having to do with bankruptcy, and show that it is worth the time to read about. Do I expect that many people will read this? Probably not. But at least I can try.

For those who do read this though, please keep in mind what I wrote above: I am a law student. I am not an attorney. Please do not substitute my writings for consultation with an attorney, which is a highly-advised course of action in the often complicated world of bankruptcy. I make no warranties as to the accuracy or completeness of the information provided, and no attorney-client or other relationship is being created, and I do not have the intent to plagiarize any information.  

With that being said, there are some very basic bankruptcy concepts that should be useful as you are reading. With only a few exceptions (such as determining state property law for exemptions from a bankruptcy estate), Bankruptcy Law is federal law. Article I, Section 8 of the Constitution lists the power of Congress to make "uniform Laws on the subject of Bankruptcies throughout the United States," as an enumerated power. The Bankruptcy Code is Title 11 of the United States Code, and contains several different Chapters; people often ask me what the different Chapters mean, often enough in fact that that is probably the most common aspect of bankruptcy law about which I am asked. 

Chapters 1, 3 and 5 are not mentioned in daily conversation as much as some of the latter Chapters, but they contain general information, instructions on case administration, and information on some of the parties to a bankruptcy case: the creditors and the debtor (the bankrupt person). Though it is difficult to pick out only a couple fundamental terms, I should mention that at the moment a debtor files for bankruptcy, all of his or her nonexempt property becomes part of a bankruptcy "estate," and an automatic stay is in place - creditors are instantly prohibited from attempting to collect on their debts. 

Chapter 7 is liquidation. This applies to both individuals and business entities. A business entity may end its operations, or an individual debtor may have the assets in his estate sold off to satisfy part of the debt owed to his or her creditors. It is, by far, the commonest form of bankruptcy.

Chapter 9 is municipal bankruptcy. I must confess that it is an area in which I know little, as it was not heavily discussed in my bankruptcy class, and I have not encountered it in my independent studying.

Chapter 11 is the form of bankruptcy that likely gets the most media attention - reorganization. This is often discussed in conjunction with the bankruptcies of major corporations (General Motors), and lately with several different Roman Catholic Dioceses. It can also be used by individuals, though - Mike Tyson filed for Chapter 11 in 2003. Here, I should mention that some people have come to me with the notion that all people who file for bankruptcy are "poor." This is not necessarily true; it just means that they are insolvent. Basically, this means one of two things: either their liabilities exceed their assets, or they are unable to pay their debts as they come due.

Chapter 12 is a relatively new Chapter which provides for debt adjustments for family farmers and family fisherman. It was made permanent in 2005 by the ultra-important Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). 

Chapter 13 provides for debt adjustment for individuals with regular income. It is not open to business entities. It is meant to be attractive to individuals in that a Chapter 13 debtor will get to keep her assets (her home, in particular), and will pay a portion of the debt off to her creditors over either a three- or five-year period, depending on the circumstances. BAPCPA further provides a "means test," in which debtors with a certain amount of income will be barred from proceeding under Chapter 7, and will instead have to use Chapter 13. The Bankruptcy Code has a preference for Chapter 13.

Chapter 15 is for cross-border cases. This is another area not covered at length in my bankruptcy class, but one I am studying independently at the moment. It is modeled after the United Nations Commission on International Trade Law (UNCITRAL) of 1997.

With the (very) basics out of the way, I plan on adding a new blog entry on a weekly basis. Those entries will, of course, have more specified topics than the current one. Next week I plan on writing about the ability to discharge student loan debt in bankruptcy, in which I hope many will take an interest. I was inspired about that topic because of a recent podcast I listened to from the American Bankruptcy Institute. 

So until next week (or whenever I decide to write again), thanks for reading, and please come back for more insolvency enlightenment!

J.P. Morgan

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