Bankruptcy Code

Divided into chapters, not articles

Chapters 1 – chapters of general provisions and case administration

Chapter 3 – chapters of general provisions and case administration

Chapter 5 – chapters of general provisions and case administration

Chapter 7 – liquidation

Chapter 11 – reorganization

Chapter 12 – family farms

Chapter 13 – repayment

Policies and Motivation behind Code
Fairness to creditors – property should be fairly distributed so that some creditors do not obtain an unfair advantage over others

Protect the creditor from debtor taking actions that would diminish the value of debtor’s estate

Give business an opportunity to survive

Give debtor additional time to pay off debt so as not to drown him

Have the process be speedy

Fresh start – debtor may be discharged and allowed to keep a minimum amount of assets to start “fresh”

History of Bankruptcy
Sponging House – Typically, a debtor was accused by the person to whom money was owed. The accused was held several days in a sponging house. If, in a few days, the money was not raised, the debtor was imprisoned until the debt was paid

Prominent London Debtor’s Prisons – The Fleet, The King’s Bench, the Marshalsea Prison

1500 England: First general bankruptcy law. Discharge was not allowed

1720s England: Statute of Anne – essentially a carrot because it allowed dischargeability, but if one refused to file, the offense was capital punishment

US. Constitution (1789): Article I, Section 8 provides Congress with the power “to establish uniform Laws on the subject of Bankruptcies throughout the United States.”

1898: The first Comprehensive Bankruptcy Act was enacted. It only allowed for “straight bankruptcy” (liquidation)

1938: The Chandler Act provided for a reorganization alternative to liquidation

1978: The Bankruptcy Reform Act of 1978 – created the Bankruptcy Code (“The Code”) which we use today and has been amended several times

2005: Prevention and Consumer Protection Act of 2005 – applies to all cases filed after October 17, 2005. Debtors who would like to file for Chapter 7 must pass the Means Test If they fail, must file under Chapter 13, a re-payment chapter