THE BASICS OF BANKRUPTCY (Part I) | 杨清泉律师事务所

THE BASICS OF BANKRUPTCY (Part I)

Article I, Section 8 of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies. Pursuant to this grant of authority, Congress enacted the “Bankruptcy Code” of 1978. This Code is codified as title 11 of the United States Code and has been amended several times since its enactment with the latest amendment in 2005. This 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 (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.

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 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. This administrative process is carried out by a trustee who is appointed to oversee the case. Since the start of the pandemic and the foreseeable future, trustees conduct debtor interviews telephonically or by zoom. Prior to the pandemic, trustee hearings were held in U.S. trustee hearing rooms in Los Angeles, Woodland Hills, Santa Ana and Riverside.

A debtor’s involvement with the bankruptcy judge is usually very 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 have to appear before the bankruptcy judge at a plan confirmation hearing. These are done by zoom post pandemic. Pre pandemic, court room appearances were required. The only formal proceeding at which a debtor must appear is the meeting of creditors held at the U.S. Trustee hearing rooms. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property. Creditors normally don’t show up especially in “no asset” cases. However, the trustee represents the interests of all creditors in the case and is responsible for administering non-exempt assets of the bankruptcy estate.

What is the goal of bankruptcy? The Supreme Court said this about the purpose of the bankruptcy law in a 1934 decision in the case of Local Loan Co. v. Hunt: “[Bankruptcy] gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” 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.

Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney client relationship established by reading this article.

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Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in Bankruptcy, Business, Real Estate and Civil Litigation.  He speaks English, Mandarin and Fujian and has successfully represented thousands of clients in California, including companies overseas.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.