Bankruptcy court: the court of the second changes | Opinion


What do the following 15 people have in common: Presidents Thomas Jefferson, Abraham Lincoln, Ulysses S. Grant and William McKinley; US Senator George McGovern; business innovators Henry Ford, JC Penney, and Henry John Heinz; financial advisor Dave Ramsey; talk show host Larry King; famous author Mark Twain; entertainment entrepreneurs Walt Disney and PT Barnum; actress Debbie Reynolds; and NFL Hall of Fame quarterback Johnny Unitas?

They are all well known and successful, of course. But in addition, they all suffered insurmountable financial setbacks, and they all had a second chance by filing for bankruptcy.

This list shows the wide variety of people who may be in need of bankruptcy protection. Many other widely recognized names could also be included.

It also shows that many people will experience financial setbacks and hardships in their lives and incur debts that they cannot repay. Often it is not their fault. Financial setbacks can result from a downturn in the economy or serious illness, or from poor financial planning or management, poor business decisions, or other personal or financial reasons.

The debt resulting from such setbacks can become so large that a person or business will never be able to repay it all. In addition to the financial burden, such debt can place a heavy mental and emotional burden on those trying to get on with their lives.

Individuals and businesses in this position need a second chance. The framers of the Constitution recognized this need for a second chance. Section I of the United States Constitution gives Congress the power to “make uniform laws on the subject of bankruptcy in the United States.”

Over the years, Congress has not only passed laws creating bankruptcy protections, but has also created bankruptcy courts to handle bankruptcy proceedings. Bankruptcy courts are federal courts and are part of US district courts.

Wherever there is a US district court, there is a corresponding US bankruptcy court.

The drafters also agreed that bankruptcy laws should be consistent across the country. For this reason, the Constitution refers to “uniform” bankruptcy laws. Uniformity is achieved in part by the fact that Congress grants federal courts exclusive jurisdiction over bankruptcy proceedings. This means that all bankruptcies are handled by federal courts, not state courts.

Bankruptcy proceedings begin when a person or business that can no longer repay its debts files a petition with the local bankruptcy court. In some cases, the creditors of the person or business may file a petition to have the person or business declared bankrupt.

Bankruptcy can lead to the liquidation of debts or the development of a repayment plan. Whether by liquidating a debt or establishing a repayment plan, the goal is to be fair not only to the bankrupt individual or business, but also to creditors.

Sometimes this will require that the assets of the bankrupt person or business be sold to pay off the debt as much as possible. This may be necessary because the goal of bankruptcy proceedings is not a pass, but a fresh start.

As is clear from the list of names above, bankruptcy is not a reflection of bad morals or a sign of bad business judgment. And that doesn’t stop a person from achieving great success later on. Federal courts, through bankruptcy proceedings, offer an important opportunity for a second chance and a fresh start in business and in life.

Curtis L. Collier is a United States District Judge for the Eastern District of Tennessee based in Chattanooga and chairs the Eastern District of Tennessee Civic and Outreach Committee. This article was co-authored by Carrie Brown Stefaniak, Legal Assistant to Judge Collier and Past President of the Chattanooga Chapter of the Federal Bar Association; and by Eliza L. Taylor, Legal Assistant to Judge Collier.


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