What is Bankruptcy in the United States? (Mississippi)

What is Bankruptcy in the United States?

Bankruptcy in the United States is provided under the United States Constitution, specifically Article 1 of Section 8, Clause 4, authorizing Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.”  Congress has implemented this mandate quite a number of times since 1801, with the adoption of the Bankruptcy Reform Act of 1978, codifying Title 11 of the United States Code, widely known as the Bankruptcy Code (“Code”).

The Code has undergone many amendments since 1978 with the more recent changes having a huge significant impact enacted in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).  This amendment has changed the U.S. Bankruptcy law dramatically with the popular sentiment that this amendment has resulted in severe difficulty in filing bankruptcy.

Generally, bankruptcy is filed to obtain relief from debt, and this is accomplished either through a discharge of the debt or through a restructuring of the debt. A person or an entity who files bankruptcy is called a “debtor” in bankruptcy cases. Although bankruptcy cases are filed in United States Bankruptcy Court, however matters such as concerning the legitimacy of claims as well as exemptions, are frequently governed by State law. The State law of the debtor, therefore, is a major consideration in how to file bankruptcy cases. Generalizing bankruptcy laws across state lines is consequently impracticable. For example, Bankruptcy in Mississippi, provides that entities who file bankruptcy can only claim property exemptions given by Mississippi state law.

Entities or individuals seeking relief under the Bankruptcy Code may file a petition for relief under several different chapters of the Code, depending on their circumstances. There are six categories of bankruptcy under the Bankruptcy Code, found in Title 11 of the United States Code. These types of bankruptcies are better known by their chapter number such as  “Chapter 7”,  Chapter 11”, and Chapter 13”. Among the different bankruptcies, chapters 7 and 13 are by far the most commonly filed bankruptcy cases in the United States.

Chapter 7 bankruptcy is also known as liquidation or straight bankruptcy and is the simplest and quickest form of bankruptcy available for individuals as well as business entities. Liquidation involves the appointment of a person designated as the trustee who is tasked to collect the so called non-exempt properties of the debtor, offer it for sale and then distributes the proceeds to the creditors. Because of the fact that each state permits the debtor to retain essential properties, most Chapter 7 cases results in a scenario that there are not enough non-exempt assets to distribute to creditors.

Chapter 13 bankruptcy or “Wage Earner Bankruptcy” on the other hand, involves a rehabilitation of finances for debtors with regular source of income which requires a payment plan to repay all or part of their debts.

Individuals and entities in trouble with excessive debt and facing possibility of going bankrupt may find relief in filing Bankruptcy. Coming to a decision to file bankruptcy is a very important matter that should be discussed with a Mississippi bankruptcy attorney who is well versed about bankruptcy as well as how to bankruptcy. After all, Bankruptcy laws are enacted to facilitate a fresh start by affording relief from the saddle of  devastating debt.