Bankruptcy Basics

The Federal Bankruptcy Code lays out the rules with regards to bankruptcy cases. Chapters 1, 3, and 5 are applicable to all bankruptcies. Code sections that start with 3 deal with case administration. Those that begin with 5 deal with creditors, debtors, and the bankruptcy estate. Chapters 7, 9, 11, 12, and 13 are specific provisions that govern particular types of debtors and/or financial situations. Chapter 7 deals with individual or business bankruptcies. Chapter 9 deals with municipal bankruptcies. Chapter 11 is a reorganization bankruptcy. Chapter 12 deals with bankruptcies of family farmers. Chapter 13 deals with individual wage-earners bankruptcy. The most commonly filed forms of bankruptcy are Chapters 7, 11, and 13. Three things happen right away when a bankruptcy case is filed: (1) An estate gets created; (2) An order for relief is entered; and (3) The automatic stay, an automatic injunction against lawsuits & attempts to collect, goes into effect.

The Estate

The filing of a bankruptcy case creates the bankruptcy estate. The question is-what property is included in the estate? There are three reasons why this is important: (1) Property of the estate is liquidated by the trustee in a Chapter 7 case; (2) Property of the estate is subject to the automatic stay in all chapters; and (3) The amount determines the minimum payout to creditors in a Chapter 11 reorganization. The Bankruptcy Code and case law interpreting the section form the basic doctrinal framework for analyzing whether or not property is included in the bankruptcy estate.

The Automatic Stay

The automatic stay enjoins all collection efforts against the debtor or debtor’s property effective as soon as the debtor files a bankruptcy petition. The Code includes activities that are stayed by the bankruptcy filing. If the automatic stay is willfully violated the Code also provides for remedies.