Definition of bankruptcy court

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What is bankruptcy court?

US Bankruptcy Court refers to specialized federal courtrooms in the United States. The federal government has created bankruptcy courts to deal with all types of personal and corporate bankruptcy cases.

Unlike the federal court, established by the U.S. Constitution in 1781, the bankruptcy court system did not exist until 1978, when Congress established it under the Bankruptcy Reform Act.The Bankruptcy Code of the United States has been amended several times since then.

Key points to remember

  • Bankruptcy courts are part of the federal court system.
  • It is possible to end up in bankruptcy court if you cannot afford to pay your debts.
  • Business owners sometimes go bankrupt to reorganize their debts and financial obligations without losing their business.

How the bankruptcy court works

While most criminal, civil, and family matters are heard in state courts, bankruptcy must be filed in federal court. The laws that govern bankruptcy are part of federal law, not state law, so to start bankruptcy proceedings, a person must be working within the federal court system.

There are 94 federal judicial districts in the United States and each district has a bankruptcy court. Federal law requires that a bankruptcy case be filed and heard in the judicial district where the principal residence, place of business or principal assets of the depositor is located. Although cases take place in individual states, federal bankruptcy rules govern the bankruptcy process, in order to maintain consistency from state to state.

On September 1, 2021, Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, NY, approved a $ 4.5 billion settlement in the Chapter 11 bankruptcy of OxyContin maker Purdue Pharma LP. The settlement dissolves Purdue Pharma and creates a new public benefit corporation to fund the treatment and prevention of opioid addiction. It protects the former owners, the Sackler family, who will pay $ 4.5 billion over nine years, including federal settlement fees, against legal claims related to the opioid epidemic. Purdue has also agreed to release 30 million documents related to the case.

The United States Court of Appeals appoints bankruptcy judges, who serve 14-year terms. Bankruptcy court proceedings are public unless a judge decides they remain under seal and can be viewed at the bankruptcy clerk’s office or through public access to the court’s electronic records, also known as PACER.

Bankruptcy court proceedings

Bankruptcy itself can arise when a person or business cannot pay off debts. After the debtor files the petition, the following procedures are decided by the bankruptcy courts: the court measures and assesses the debtor’s situation, then returns a process and plan on how the debtor’s assets can be used to repay part of the outstanding debt.

The decision is overseen by a bankruptcy judge, and this judge is able to decide whether or not the debtor should be discharged from his debts. This means that the debtor will no longer be liable or personally liable for the debts related to the deposit. Some debts, however, are not eligible for discharge, including tax claims, child support, alimony payments, and personal injury debts.

Nor can an individual be released from any debt on secured property, and any creditor can still exercise a lien on a debtor’s property.

Bankruptcy courts make extensive use of video and audio conferencing facilities because it is impossible to bring together creditors from different parts of the country in one room at the same time.

Can You Appeal a Bankruptcy Court Decision?

If an individual or creditor disagrees with the bankruptcy judge’s decision and wishes to challenge the judge’s decision, the depositor has the opportunity to appeal and begin the appeal process.

The appeal is generally brought by individuals or companies who have standing in the decision or who are directly affected by it. A bankruptcy court decision incorporates multiple claims made by creditors, who can claim “financial loss” and are directly affected by it.

The appeal, for example, may result from the failure of a creditor’s claim to be honored or contested by the bankrupt business or individual.

The appeal must be filed within ten days of the bankruptcy court ruling. An appeals court usually deals with bankruptcy appeals. In fact, there are many judicial circuits which have their own specific bankruptcy appellate courts to deal with such disputes.

Examples of bankruptcy cases

Bankruptcy filings can be triggered by various circumstances in a person’s life. An individual may, for example, accumulate credit card debts which may be too high for him to repay them and file for Chapter 7 bankruptcy. Depending on their life circumstances at the time of filing, a bankruptcy court may. make a decision that they could write off their debts.

Another example is the case of a person whose monthly mortgage payments are too high to be able to repay them. A Chapter 13 bankruptcy filing can help lower their monthly liabilities and make payments manageable.

In the case of businesses, bankruptcy courts can help facilitate the reorganization of a business under Chapter 11 bankruptcy.


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