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Laws Governing Bankruptcy

Bankruptcy is regulated by federal laws, which provide for an orderly adjustment when a person or business becomes insolvent. When one has more debts than assets and has no means of meeting debt payment, he may de¬clare bankruptcy. The interests of both creditors and debtor are given consideration by the court.

The Constitution gives Congress the power to estab¬lish "uniform Laws on the subject of Bankruptcies throughout the United States" (Article I, Section 8). The first bankruptcy act was passed by Congress in 1800, pat¬terned on English law. It was repealed in 1803 and for the next 40 years debtors were subject to state laws. The sec¬ond federal law, enacted in 1841, was a consequence of the depression and panic of 1837. Several subsequent bankruptcy laws were enacted and repealed.

The act on which current law is based was passed in 1898. Amending acts in 1933, 1934, and 1935 attempted to help honest debtors rehabilitate themselves. The Chan¬dler Act of 1938 was designed to protect creditors from exploitation in the settlement of corporate bankruptcy cases, allowing these creditors free legal assistance from the federal Securities and Exchange Commission.

When a person or corporation decides that debt has become too burdensome, a petition of bankruptcy is filed. At that point the court assumes control over the assets of the debtor.

A custodian or trustee is appointed to oversee the debtor's property to protect it from loss. This trustee has legal ownership of ail assets of the bankrupt estate ex¬cept those exempt under local law.

The two main types of bankruptcy are the "volun¬tary" petition, filed by the debtor himself, and the "invol¬untary" proceeding, filed against him by his creditors.

Once a bankruptcy proceeding has been started,