Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors.
Dispite RUMORS floating around, Bankruptcy is still available!
A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in the overwhelming majority of cases, the bankruptcy is initiated by the
bankrupt individual or organization.
Purpose
The primary purpose of the laws of bankruptcy are:
- to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and
- to repay creditors in an orderly manner to the extent that the debtor has the means available for payment.
Bankruptcy allows debtors to resolve debts through the division of non-exempt assets among creditors. Additionally the declaration of bankruptcy allows debtors to be discharged of most of the financial obligations, after their non-exempt assets are distributed, even if their debts have not been paid in full. During the pendency of a bankruptcy proceeding, the debtor is protected from extra-bankruptcy action by creditors by a legally imposed STAY. The creditor will not be permitted to continue lawsuits, garnish wages, or contact the debtor by phone to demand payment.
History
This word is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). A "bank" originally referred to a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange, etc. Hence, when a banker failed, he broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. As this practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banco rotto, broken bench (see e.g. Ponte Vecchio). Others rather choose to deduce the word from the French banque, table, and route, vestigium, trace, by metaphor from the sign left in the ground, of a table once fastened to it and now gone. On this principle they trace the origin of bankrupts from the ancient Roman mensarii or argentarii, who had their tabernae or mensae in certain public places; and who, when they fled, or made off with the money that had been entrusted to them, left only the sign or shadow of their former station behind them.
Bankruptcy in the United States
Bankruptcy in the United States is a matter placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8), which allows Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States […]". Its implementation, however, is found in statute law. Much of the relevant statutes are incorporated within the Bankruptcy Code, located at title 11 of the United States Code, and amplified by state law in the many places where federal law either is absent or expressly defers to state law. Other bankruptcy statutes are found in titles 18 (crimes), 26 (internal revenue code) and 28 (judicial procedure) of the United States Code.
While bankruptcy cases are always filed in United States bankruptcy court (which are units of the United States district courts), bankruptcy cases, particularly regarding the validity of claims and exemptions, are often highly dependent on state law. State law therefore plays a major role in many bankruptcy cases, and it is often unwise to generalize bankruptcy issues across state lines.
