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Bankruptcy
Bankruptcy is a legally declared inability or impairment of
ability of an individual or organization to pay its creditors. Creditors may
file a bankruptcy petition against a debtor ("involuntary bankruptcy") in an
effort to recoup a portion of what they are owed or initiate a restructuring. In
the majority of cases, however, bankruptcy is initiated by the debtor (a
"voluntary bankruptcy" that is filed by the insolvent individual or
organization).
Bankruptcy in the United States is a matter placed under
Federal jurisdiction by the United States Constitution (in Article 1, Section 8,
Clause 4), which allows Congress to enact "uniform laws on the subject of
bankruptcies throughout the United States." The Congress has enacted statute law
governing bankruptcy, primarily in the form of the Bankruptcy Code,
located at Title 11 of the United States Code. Federal law is amplified by state
law in some places where Federal law fails to speak or expressly defers to state
law.
While bankruptcy cases are always filed in United States
Bankruptcy Court (an adjunct to the U.S. District Courts), bankruptcy cases,
particularly with respect to the validity of claims and exemptions, are often
dependent upon State law. State law therefore plays a major role in many
bankruptcy cases, and it is often not possible to generalize bankruptcy law
across state lines.
Generally, a debtor declares bankruptcy to obtain relief from
debt, and this is accomplished either through a discharge of the debt or through
a restructuring of the debt. Generally, when a debtor files a voluntary
petition, his or her bankruptcy case commences.
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