Congress passed the
Bankruptcy Code under its Constitutional grant of
authority to "establish. . . uniform laws on the subject
of Bankruptcy throughout the United States." See
U.S. Constitution Article I, Section 8.
States may not regulate bankruptcy though they may
pass laws that govern other aspects of the debtor-creditor
relationship. See
Debtor-Creditor. A
number of sections of Title 11 incorporate the
debtor-creditor law of the individual states.
Bankruptcy proceedings
are supervised by and litigated in the
United States Bankruptcy Courts. These courts are a
part of the District Courts of The United States.
The United States Trustees were
established by Congress to handle many of the supervisory
and administrative duties of bankruptcy proceedings.
Proceedings in bankruptcy courts are governed by the
Bankruptcy Rules which were promulgated by the Supreme
Court under the authority of Congress.
There are two basic types
of Bankruptcy proceedings. A filing under
Chapter 7 is called
liquidation. It is the most common type of bankruptcy
proceeding. Liquidation involves the appointment of a
trustee who collects the non-exempt property of the
debtor, sells it and distributes the proceeds to the
creditors.
Bankruptcy proceedings
under Chapters
11 ,
12 , and
13 involve the
rehabilitation of the debtor to allow him or her to use
future earnings to pay off creditors. Under Chapter 7, 12,
13, and some 11 proceedings, a trustee is appointed to
supervise the assets of the debtor.
A bankruptcy
proceeding can either be entered into voluntarily by a
debtor or initiated by creditors. After a bankruptcy
proceeding is filed, creditors, for the most part, may not
seek to collect their debts outside of the proceeding. The
debtor is not allowed to transfer property that has been
declared part of the estate subject to proceedings.
Furthermore, certain pre-proceeding transfers of property,
secured interests, and liens may be delayed or
invalidated. Various provisions of the Bankruptcy Code
also establish the priority of creditors' interests.
However, a recent
decision by the Supreme Court has shifted this power
towards the debtor. In
Rousey v. Jacoway, (April 4th, 2005), the Court held
that assets in
Individual Retirement Accounts (IRA’s) are
protected under
11 U.S.C § 522(d) and thus exempt from withdrawal from
the bankruptcy estate. This decision has broad
implications for the baby-boomer generation, providing
millions of Americans nearing retirement with increased
protection of their earnings.
Recent passage of the
Bankruptcy Prevention and Consumer Protection Act
in April 2005 has also resulted in major reforms in
bankruptcy law, outlining revised guidelines governing
the dismissal or conversion of Chapter 7 liquidations to
Chapter 11 or 13 proceedings. The law also expands the
responsibilities of the United States Trustees Program to
include supervision of random and targeted audits,
certification of entities to provide credit counseling
that individuals must receive before filing for
bankruptcy, certification of entities that provide
financial education to individuals before being discharged
from debt, and greater oversight of small business Chapter
11 reorganization cases.