Bankruptcy Essay Example

This paper provides a brief analysis of two court cases involving bankruptcy, while also describing the primary characteristics of each form of bankruptcy and explaining what the goal of declaring bankruptcy is.

Harris v. Viegelahn, Chapter 13 Trustee

Issues

In this case, the Supreme Court had to determine whether or not Harris was entitled to have the undistributed funds – that were held by the Chapter 13 trustee – returned to him after he converted his bankruptcy case from Chapter 13 to Chapter 7.

Rules

To solve this issue, the court considered Title 11 U.S. Code – also known as the United States Bankruptcy Code – which states that in a Chapter 7 bankruptcy case, “earnings are not estate property; instead, they belong to the debtor”. (Supreme Court of the United States) The only exception to this rule is “debtors who convert in bad faith”, which is also outlined in the U.S. Bankruptcy Code. (Supreme Court of the United States)

Analysis

Because the court did not find any valid evidence suggesting that Harris “concealed assets or manipulated the bankruptcy system in an unfair manner”, it is reasonable to conclude that Harris did not act in bad faith when converting his bankruptcy case from Chapter 13 to Chapter 7. (Supreme Court of the United States) And because the funds that Harris was trying to get returned were earned after he converted his case to Chapter 7, it is only right for those funds to be returned based upon what the U.S. Bankruptcy Code states regarding post-petition wages.

Conclusion

In the end, the court determined that the undistributed funds must be returned to Harris.

Czyzewski et al. v Jevic Holding Corp. et al.

Issues

In this case, the issue was determining if a bankruptcy court can “approve a structured dismissal that provides for distributions that do not follow ordinary priority rules without the affected creditors’ consent”. (Supreme Court of the United States)

Rules

To form a judgment, the rules under the United States Bankruptcy Code were examined. Under this code, “a bankruptcy court has the power to dismiss a Chapter 11 case”. (Supreme Court of the United States)

Analysis

Because the rules under the Bankruptcy Code do not mention anything regarding bankruptcy courts having the authority to make nonconsensual distributions, it is with reason to imply that a bankruptcy court does not have that power. Giving a court the power to dismiss a Chapter 11 bankruptcy case does not mean that the court has been granted the ability to make distributions – especially without consent.

Conclusion

After looking into the issue, the court also determined that – under the U.S. Bankruptcy code – Bankruptcy courts cannot approve dismissals that include nonconsensual distribution.

Chapter 13 Bankruptcy (Wage-Earners Plan)

This form of bankruptcy allows individuals to pay off their debt through a court-approved repayment plan over a time period of no longer than five years. Filing under Chapter 13 provides individuals with the potential to stop a foreclosure on their house, and also protect other assets. However, debt must be under a certain amount in order to file.

Chapter 7 Bankruptcy (Liquidation)

Both individuals and businesses can file for this type of bankruptcy. However, there are not as many advantages with this form of bankruptcy as there are with Chapter 13. With Chapter 7, assets are liquidated – or sold – in order to pay creditors, and foreclosures may be delayed – but not stopped. This form of bankruptcy also has an income requirement. Chapter 7 allows some debt to be forgiven completely, most often with the loss of property.

Chapter 11 Bankruptcy (Reorganization)

This kind of bankruptcy allows for debts to possibly be reduced, an extension of the time period in which debts must be repaid, and the potential to borrow money as long as it is court approved. Asset liquidation is also possible under this chapter. Usually, businesses or business owners file under Chapter 11 since there is no minimum or maximum debt or income requirement.

The Goal

Each chapter of bankruptcy comes with varying pros and cons, but all have the same goal. Regardless of the chapter someone files under, the ability to declare bankruptcy exists to provide debtors with a fresh financial start.

BAPCPA

The Bankruptcy Abuse Prevention and Consumer Protection Act resulted in consumers having to pass a test in order to prevent individuals with a certain income level from filing under Chapter 7, and it also affected banking practices and IRA accounts – providing them with more protection under federal law. Overall, the enactment of this bankruptcy reform made it difficult for individuals to file for Chapter 7 bankruptcy to prevent the system from being abused.