Bankruptcy is the last resort for the critically insolvent people to wrest their financial obligations once and for all. The U.S Congress has set some rules to govern bankruptcy proceedings and expects all the parties involved to comply with them.
Bankruptcy law – A basic definition
Bankruptcy law is actually a federal statutory law included in Title 11 of the United States Code (USC). A Bankruptcy Code has been passed by the Congress as per the U.S Constitution Article I, Section 8. This law authorizes the Congress to devise bankruptcy laws that would apply to all the states that lie within its official jurisdiction.
States are not conferred with the rights to administer bankruptcy. However, the Constitution grants them the provision to come up with laws that is related to other associated matters like debtor-creditor relationship. In Title 11, a number of sections have been devoted to laws regarding debtor-creditor in the individual states.
Bankruptcy proceedings and the United States Trustees
The United States Bankruptcy Courts supervises bankruptcy proceedings and presides over relevant litigations. They function under the District Courts of the United States. Both the supervisory as well as administrative duties of the bankruptcy proceedings are handled by the United States Trustees.
The Supreme Court enjoys the confidence of the Congress to promulgate laws to govern bankruptcy proceedings in the country.
Bankruptcy and the BAPCPA
The BAPCPA stands for the “Bankruptcy Abuse Prevention and Consumer Protection Act”. Basically, it was enacted to make it tougher for the debtors to qualify for Chapter 7 bankruptcy by evaluating their ability to repay their debts on the basis of a means test. This test weighs the monthly income of the debtors within their state of residence and grants them with allowances according to their projected monthly expenses.
Such monthly expenses are determined on the basis of rates that have already been decided by the Internal Revenue Service (IRS), along with the allowance for their real monthly expenses. If the median income of a Chapter 7 bankruptcy filer exceeds and is left with excessive amount of disposable income after paying his or her monthly household needs, then such a debtor won’t qualify for it to come out from debt .
Debtor and creditor relationship
Creditors are primarily divided into those who have put a lien on the debtors’ properties, creditors that command priority interest and ones that don’t have a lien on the debtors’ properties nor do they enjoy any kind of statutory priority.
Speaking about the lien creditors (like mortgage lenders), they can liquidate the assets of the debtors to satisfy their debts. While creditors with priority interest (for example, federal student loan lenders), would be paid much ahead of any other creditors and they are subjected to the Federal Tax Lien Act. Finally, creditors no liens will come much later in the priority list of parties to receive the payments from the proceeds made after liquidating a debtor’s assets.
Apart from them, there is a non-bankruptcy debtor-creditor relationship that is governed mainly by the statutory as well as common law. More, Tort law like defamation restricts debt collection activities and they are administered by the state courts.
As far as satisfying their debts are concerned, creditors take advantage of legal provisions like wage garnishment and attachment. Wage garnishment refers to the seizure of monthly income, barring some exempted ones like Social Security benefits, to recover their loan money, after setting aside a minimal amount of living cost for the debtors aside.
Alternatively, attachment allows the creditors to seize a part of the debtor’s property to satisfy their debts. However, the Federal Consumer Credit Protection Act, federal and state statutes have put a cap on the kind of properties that can be exploited by the creditors to recover their outstanding loan balances from the debtors.