What is Bankruptcy?

Bankruptcy can be defined as a state when an individual or a person is in a poor financial state and is not in a position to pay back his/its debts to his/their creditors. The state of bankruptcy can acquire a legal status only when such an impaired financial state is duly recognized by a designated court of law. The process of bankruptcy is initiated by the individual or the organization.

Ancient Origin of the Term Bankruptcy

The word ‘bankruptcy’ originated from the ancient Latin words bancus and ruptus. While bancus means a bench or a table, ruptus means broken. A bank also referred to a bench which was placed by the bankers in the market places or the fairs. These banks or benches contained the details about the bills of exchange and other tolls about the money. Whenever a banker failed to continue his business, he would break the bank to indicate to the public his inability to do the business. Since this practice was very much in vogue in Italy, the broken bench-banco rotto- or bankruptcy has its origin in Italy.In ancient Greece, when a father died bankrupt, his descendants and survivors had to pay back the creditors in terms of manual labor. This is to say that the borrower’s descendents had to do manual labor for him for a period of five years. In some cases, the enslavement lasted much longer, even life time

Legal Status of Bankruptcy

With the passage of time, bankruptcy acquired a legal status and as with every legal issue, it continues to be debated according to the changing social and financial contexts and circumstances. President George Bush signed a bankruptcy law on April 20, 2005,called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). The BAPCPA made significant alterations in the existing bankruptcy regime in respect of the Bankruptcy Code and other rules.

Bankruptcy Courts

There is a bankruptcy court in every judicial district. Each state has one or more districts. There are around 90 bankruptcy districts in the country. Each district court is presided over by a judicial officer or a bankruptcy judge who has the powers to adjudicate all the bankruptcy cases. The judge decides whether or not a particular person or organization can qualify for a bankruptcy relief or discharge of debts. Most of the bankruptcy proceedings are of administrative type and are conducted away from the courthouse. According to the new law, the bankruptcy applicants have to use a set of official forms to initiate the legal procedures to resolve their bankruptcy problems.

Bankruptcy Laws

In certain bankruptcy cases, especially those covered under the chapters 7, 11 or 13, the court appoints a trustee to oversee the process. The debtor’s participation or involvement in the bankruptcy proceedings is generally quite limited. In cases under the chapter 7, the debtor does not appear in the proceedings unless some objections are raised in the case. Under chapter 13, the debtor may appear before the bankruptcy judge only to confirm the plan during the hearings. A debtor is expected to meet the creditors at specially arranged meetings which are held at the offices of the U.S trustees. These meetings are held under the article 341 of the Bankruptcy Code and are usually referred to as 341 meetings. The creditors question the debtors about his property and debts during these meetings.