Bankruptcies involve the application of rules and code. They are overseen by trustees and ultimate determinations are made by the court.
Bankruptcy Rules and Code
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases.
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.
There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country.
The bankruptcy courts generally have their own clerk’s offices.
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 a discharge of debts.
Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. When debtors seek discharge of debts and no objection is made, the court may grant the debtor an automatic discharge. When the debtor or trustee lodges an objection to the discharge of a debt or debts, an adversary proceeding ensues.
In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, the administrative process is carried out by a trustee who is appointed to oversee the case.
The trustee in a chapter 7 case is in charge of liquidating the assets of the debtor that are classified as nonexempt. Exempt assets are generally a certain amount or value of necessities and other non-extravagant assets. The trustee takes the nonexempt assets of the debtor and liquidates, or sells them. The trustee next distributes the money from the liquidation to the creditors. Often, all of the debtor’s assets will be exempt and there will be no assets for the trustee to liquidate in order to repay creditors.
The trustee in a chapter 12 or 13 bankruptcy have duties similar to the duties of the chapter 7 bankruptcy trustee. However, in a chapter 12 or 13 bankruptcy, the debtor will also have some type of plan for the repayment of some or all debt. The bankruptcy trustee in a chapter 12 or 13 case will oversee this repayment plan and the debtor’s compliance. The trustee will accept payment from the debtor pursuant to this plan and hand over appropriate payments to appropriate creditors.