Why Bankruptcy Matters?

Bankruptcy, both from the perspective of the individual and the corporation matters a great deal. Liquidation is significant in that it offers a handle to the bankrupt individual to appeal against some restrictions which kick in legally that can seriously inconvenience the person. In the same vein, a corporate entity, sole proprietorship or partnership firm may file for insolvency as mandated in chapter 11 of the US Code for Bankruptcy. Such a commercial organization usually constituted and administered by a group of individuals exploits the clauses underlined in Chapter 11 Bankruptcy as a shield to restructure its debts.
The contemporary bankruptcy statutes in the US are enshrined in the American Constitution. The US Congress is the supreme authority to interpret and amend existing national laws pertaining to insolvency as well as create and pass new edicts. However, much before the constitution of the United States was drafted, every state and colony (of the US) had set the ball rolling for crafting their respective laws on liquidation.
It is debated that the bankers used their collective clout to influence the illustrious drafters of the US Constitution to bestow upon the Congress the power to formulate Bankruptcy conventions for the newly independent nation. The fact that the bankers and capitalists controlled the national purse strings and wielded sweeping authority over the legislators is demonstrated by the above assertion. The investors and financiers were apprehensive that every state would create its own liquidation laws in a manner that’d favor the individual but would harm their interests.
That the Federal Government of the US can interpret, override, and overrule provisions in the states’ Bankruptcy clauses is one way in which it wields enormous control over the states. However, there are still some vestiges in the US Constitution that offer the states a degree of freedom in devising and promulgating laws on insolvency. These vestiges are termed as ‘States Exemptions’, and every US state has its relevant State exemptions that elucidate specific assets which cannot be usurped by the creditors.
For instance, if you submit a plea for bankruptcy in Florida, the stipulations underlined in the exemptions for this specific state will determine the type of possessions which cannot be attached. In other words, your creditors will not be able to seize such assets from you in order to settle the debts, your having filed for liquidation notwithstanding. Bankruptcy offers the individual to weigh up his or her interests in relation to the interests of creditors.
Then again, the liquidation process also offers the defaulter an opportunity to start afresh following discharge. State exemptions also mirror the above two objectives relating to bankruptcy as the immunity conditions clearly define and maintain that specific assets are indispensable for the debtor to start anew. The rationale behind enshrining exemptions for every state is to thwart the likelihood of the bankrupt individual becoming a burden on the state.
Long before the US Constitution came into effect, an individual going broke had to serve as an indentured or bonded labor for a period until the debt was considered cleared. Debt bondage was simply a respected term for ‘slavery’ and indentured servitude happened to be the most primitive form of enslavement.
Jay Weller is a bankruptcy attorney who began practicing bankruptcy law in 1993. Weller Legal Group is primarily dedicated to the representation of debtors in Chapter 7 and Chapter 13 bankruptcy proceedings. However, our offices also offer many alternatives to bankruptcy. To read more blogs on bankruptcy and other legal topics visit Weller Legal Group website. Follow Jay Weller on Facebook and Twitter.
