Page 4 - US Bankruptcy Code Overview

> BECOMING A DEBTOR Who can be a debtor:
- Individuals, partnerships and corporations that reside or have a domicile, place of business, or any property in the United States can be debtors under chapters 7 or 11 of the Bankruptcy Code. See 11 U.S.C. § 109(a).
- Railroads, insurance companies, banks, savings banks and certain other entities cannot be chapter 7 debtors. See 11 U.S.C. § 109(b).
- Chapters 9, 12 and 13 are reserved for municipalities, family farmers and certain individuals, respectively.
Voluntary Filing:
- A case commenced by a debtor’s filing of a petition with the relevant Bankruptcy Court. - The commencement of a voluntary case constitutes an “Order for Relief.”
- See 11 U.S.C. § 301.
Involuntary Filing:
- Chapter 7 or 11 case can be filed against a debtor by three or more creditors with unsecured claims (which are not subject to bona fide dispute as to liability or amount) in the aggregate amount of at least $16,750, unless the debtor has fewer than 12 unsecured creditors, in which case one creditor with a claim of at least $16,750 may file. See 11 U.S.C. § 303(b).
• Debtor’s answer to an involuntary petition is due 21 days after service. See 11 U.S.C. § 303(d); Bankruptcy Rule 1011(b).
• If the debtor proves that it is solvent, the case will be dismissed. Costs, fees, proximately caused damages or punitive damages may be imposed on the petitioning creditors for any improper filing. See 11 U.S.C. § 303(i).
• If the debtor is found to be insolvent, the Court will enter an “Order for Relief” and the bankruptcy case proceeds
When to File:
- When liabilities are greater than assets – “balance sheet test” (not sufficient by itself)
- When the debtor is unable to pay debts as they come due – “cash flow test.”
- Individuals and family farmers who have been a debtor within the preceding 180 days cannot file a new case under certain circumstances. See 11 U.S.C. § 109(g).
- There are no other restrictions on the ability of an entity or individual to file for an Order for Relief at any time, provided they meet the requirements of the Bankruptcy Code.
- There is no formal judicial adjudication of the debtor’s bankruptcy status.
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