Bankruptcy Laws in the US
BankruptcyLaws in the US
In the US, a full scope of federal laws in the Constitution that isused in addressing different state or public issues exists. Thegovernment rules are meant to safeguard the public welfare andprovide legal guidance on handling specific matters in the state andthe public domain in general. One of the major areas of law in theConstitution is the country`s bankruptcy code. The bankruptcy statuteis a subset of the larger US code. Specifically, title 11 of thecountry code is the section that consists of the bankruptcy rules andregulations. Lastra (2011) asserts that the bankruptcy law isconcerned with insolvency issues of individuals and organizations aswell as the way such problems should be addressed in courts of lawacross all the states of the communist nation. This paper willexclusively explore the bankruptcy laws in the United States.
AnOverview of Bankruptcy Laws
The bankruptcy area of law in the US Constitution is clearly statedin title 11 of the overall bankruptcy code of the country.Furthermore, the United States Constitution provides the Congresswith the sole authority to sanction the act on bankruptcy cases in ahomogenous sense across all the states of the U.S government.Consequently, the Congress exercised the mandated jurisdictionsseverally ever since 1801 when the statute was introduced. Altman &Hotchkiss (2010) affirms that recently, the Congress adopted theBankruptcy Abuse Prevention and Consumer Protection Act of 2005.
In the courts of the US, the state law provides the legal guidelinesand procedures for handling bankruptcy cases. For instance, there arestate laws that contain rules protecting particular properties ofdebtors from creditors seeking repayment of their dues. However, dueto the broadness of the bankruptcy matters, the US government wasrather intelligent in dividing the topic into nine othersub-categories. Some of the chapters derived from the title 11bankruptcy rules include chapter five, which deals with the debtor,creditors, and the Estate. Additionally, there is also chapter sevenconcerned with the liquidation of properties for payment of debts(Sousa, 2011).
ThePurpose and Policy Behind the Bankruptcy Laws
Notably, several reasons led to the creation of the United Statesbankruptcy codes. Besides, the purpose of creating bankruptcy laws isbased on the fact that the federal leadership intended to offerentrepreneurs protection and safety against the uncertainties ofbusinesses. Moreover, the general bankruptcy code aimed at givingopportunities to honest debtors who wished to reconsider theiractivities after an unprecedented setback in business. Therefore, thegovernment proposed to enhance property security through courts oflaw throughout the country.
Furthermore, the policy of bankruptcy had some more specificobjectives of the U.S citizens. One of the primary principle targetswas to grant the honest, but rather unfortunate debtors with theopportunity to start again after a calamity in business. Through thebankruptcy act, debtors who are unable to repay their debts may berelieved of their money or given longer repayment periods (Warren,2011). In this way, those who may have experienced a downturn intheir businesses are given the permission and the opportunity torecover from the business hardships.
Another intention of the bankruptcy code is to provide the guidelinesupon which insolvent debtors can follow in renewing their businesstransactions with creditors in a peaceful manner. By doing so, theborrowers are given an opening to put more effort in the futurewithout constraints from previous struggles.
The Bankruptcy Act also proposes to relieve the honest debtors of thesubsequent responsibilities of debts upon misfortunes in theirbusinesses. The forthright debtors are relieved from the weight ofoppressive liability when they encounter difficulties in theirbusinesses. By freeing such honest debtors, the borrowers are grantedan opportunity to restart their projects without blame or challengingresponsibility.
TheIssues Arising From Practical Application of the Bankruptcy Laws
The US government has been experiencing difficulties in implementingthe Bankruptcy Act. Some of the problems arising between debtors andcreditors hinder the efficient enforcement of the act. As a result,the effective enactment of the bankruptcy laws is crippled to theextent that new issues may emerge, which may also be closely relatedto the bankruptcy matter. Furthermore, some problems may originatefrom the government trying to accomplish the purposes to which thebankruptcy code was created.
One of the issues is that implementing some of the laws would causefuture problems for individuals seeking employment. For instance, ifa case is filed under chapter 13 of the bankruptcy code, the debtoris required to provide a credit report for a cumulative period ofseven years (Marinc & Vlahu, 2011). During the seven-year period,the debtor may have complications in securing employmentopportunities. For that reason, prospective troubles may be createdthrough the implementation of the bankruptcy act.
Another subject of concern arising from the enforcement of thebankruptcy law is that prospects of credit and loans may besuspended. For debtors to rebuild their creditworthiness afterbankruptcy, they need to restart from the beginning. As such,uplifting the trustworthiness of the borrower can take an extendedperiod considering they need to begin from a relatively low level.For that reason, the debtors may be blocked from future prospectiveloans and other credit services.
Importanceof Bankruptcy Laws to Businesses
The bankruptcy act has several issues that are crucial to businesses.Both the existing and potential businesses need to have goodknowledge of the topics, which are of great relevance to theiractivities. For instance, it is important for crediting firms tostudy the credit history of their clients before granting loans tothem. The provisions of the bankruptcy act require such crucialinformation to be provided by the debtor for future reference if theneed arises. By doing so, the creditors would effectively avoidunreliable customers and prevent potential losses.
Additionally, it is important for companies to know the legalprocedures that they can undertake in case their business runsbankrupt. In this way, they will be able to protect their property.If an organization or individual wishes to revive the business in thefuture, it would be necessary to follow the law to establish propersecurity of assets. By doing so, many businesses would enjoy theopportunity to redeem themselves.
EthicalIssues in Bankruptcy Law Implementation
Ethical issues arise when the method chosen in resolving a case isnot suited to meet clients’ objectives. According to Hazard, Hodes,& Jarvis (2014), ethical issues may arise when the chapter chosenin filing a case does not favor a particular individual ororganization. Due to this effect, a debtor or the creditor may feelunsatisfied.
One of the ethical issues arises when a debtor is ruled according tochapter 13 of the bankruptcy code, which specifies an amount limitwhere a debtor can be relieved. However, most courts are blamed ofaddressing the matter according to the legal requirements of chapter13, thus rendering some debtors ineligible for the debt relief. Sucha circumstance can make borrowers feel unsatisfied considering thereare different options from other chapters that could be favorable.
Another ethical question arises when a debtor is ruled according tochapter 7 of the bankruptcy law, which allows a particular time for aborrower to be eligible for discharge. Altman and Hotchkiss (2010)further state that many creditors argue that the ruling only intendsto provide debtors with ample time to become eligible for debtdischarge. In such a case of dissatisfaction, the lenders may feelthat the judgment is unfair and may seek help from other chapters ofthe code for a better option to achieve their goal.
From the above information, it is evident that there is an extensiverange of coverage in the area of law concerned with the bankruptcytopic. Furthermore, the bankruptcy law has undergone several changesrecently to accommodate the growing need for guidelines and legalprocedures of handling bankruptcy cases. Besides, the bankruptcy codehas been used on several occasions in the US to resolve insolvency,bankruptcy, and credit issues between creditors and borrowers. On abroader look, the bankruptcy code in the US intends to resolvespecific topics arising from individuals or organizations beingdeclared bankrupt or unable to pay their liabilities. It is alsoindisputable that enforcing such laws is greatly affected by severalethical reasons that need to be addressed by the U.S federalbureaucracy for a fair assessment and judgment of the individuals andorganizations involved.
Altman, E. I., & Hotchkiss, E. (2010). Corporatefinancial distress and bankruptcy: Predict and avoid bankruptcy,analyze and invest in distressed debt (Vol. 289). John Wiley& Sons.
Hazard, G. C., Hodes, W. W., & Jarvis, P. R. (2014). Lawof lawyering. Wolters Kluwer Law & Business.
Lastra, R. M., & Lastra, R. M. (Eds.). (2011). Cross-borderbank insolvency. Oxford University Press.
Marinc, M., & Vlahu, R. (2011). The economics of bankbankruptcy law. Springer Science & Business Media.
Sousa, M. D. (2011). A delicate balancing act: Satisfying the FourthAmendment while protecting the bankruptcy system from debtorfraud. Yale J. on Reg., 28, 367.
Warren, C. (2011). The supreme court in United Stateshistory (Vol. 1). Cosimo, Inc..
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