Q&A with Blaine Schwabe III
Bankruptcy can provide hope
for those in need of a new start
Q: Several high-profile bankruptcy cases recently have been in the news. Why was the bankruptcy process created?
A: Our country's bankruptcy laws are authorized by Article I, Section 8 of the U.S. Constitution. The purpose of these laws is best explained in the 1934 U.S. Supreme Court case Local Loan Co. v. Hunt. In its decision, the court said bankruptcy “gives to the honest but unfortunate debtor who surrenders for distribution the property he owns ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.”
Q: Are all bankruptcy cases filed under the same laws and rules?
A: The Bankruptcy Code provides for six basic but different types of cases to address individuals, businesses and public entities. Some, like Chapter 7 and Chapter 11 cases, are fairly generally available to most individuals and businesses, while other types of cases are only available for specific eligible debtors. For example, as its title indicates, eligibility for a Chapter 12 is limited to debtors seeking Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, and a Chapter 9 bankruptcy is available only to municipalities like cities and towns but also counties, school districts and other political subdivisions, public agencies and state instrumentalities.