Bankruptcy Law
in Rome and Utica NY

Article 1, Section 8 of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. This Bankruptcy Code is the uniform federal law that governs all bankruptcy cases.
 
 
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure, or “Bankruptcy Rules” and local rules of each bankruptcy court. 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.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the 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 discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13 this administrative process is carried out by a court appointed trustee.
 
 
A debtor's involvement with the bankruptcy is often limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only appear before the judge at a plan confirmation hearing. Usually, the only formal proceeding at which the debtor must appear is the meeting of creditors, or “341 meeting,” which is usually held at the offices of the U.S. trustee. Section 341 of the Bankruptcy Code requires that a debtor attend this meeting so that creditors can question the debtor about debts and property.

A fundamental goal of bankruptcy is to give debtors a financial “fresh start” from burdensome debts. This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.
 
 
Chapter 7:

Entitled liquidation, Chapter 7 contemplates an orderly, court supervised procedure by which a trustee takes over the assets of the debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most Chapter 7 cases, there may not be an actual liquidation of the debtor's assets. These are often called “no-asset cases.” Amendments to the Bankruptcy Code require the application of a “means test” to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor's income is in excess of certain thresholds, the debtor may not be eligible for Chapter 7.

Chapter 13:

Adjustment of Debts of an Individual with Regular Income, or Chapter 13, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a “plan” to repay creditors over time- usually 3 to 5 years. Chapter 13 is also used by consumer debtors who do not qualify for Chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disproves the debtor's repayment plan, depending on whether it meets the Bankruptcy Code's requirements for confirmation. Chapter 13 is very different from Chapter 7 since the Chapter 13 debtor usually remains in possession of the property of the estate and makes payments to the creditors, through the trustee, based on the debtor's anticipated income over the life of the plan. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect.
 
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