Viewpoints... Introduction to the U.S. personal bankruptcy system.

Article 1 of the U.S. Constitution grantsCongressThe power to enact a unified bankruptcy law, the current U.S. bankruptcy code is included inTitle 11 of the United States Code(U.S. Code: Title 11), the current law of insolvency proceedings is the Federal Rules of Bankruptcy Procedure. Although the bankruptcy law is federal law, there are important provisions of the bankruptcy law in state law, such as the bankruptcy code provides that state law may provide for the scope of the exemption of property, the validity of certain security interests may be determined by state law, and so on.

Like the Chinese bankruptcy law, there are two basic forms of bankruptcy, namely, bankruptcy liquidation and bankruptcy reorganization.

Chapter 7 of the Bankruptcy Code is entitled "Liquidation". The vast majority of bankruptcy cases are liquidation cases. Both companies and natural persons can apply Chapter VII liquidation. In a typical Chapter 7 individual liquidation case, the debtor is collected by the custodianExempt property(orfree property)Creditors with security rights in non-exempt property, other than the insolvency estate, may accept the proceeds of the transfer of the security or encumbered property;according to a certain proportiondistributed to creditors (art. 726), the insolvent portion will receiveBankruptcy Exemption.

Chapters 11, 12 and 13 of the Bankruptcy Code provide for debtor reorganization procedures. In a debtor reorganization, creditors focus on the debtor.Future earningsRather than property owned by the debtor at the time of the commencement of insolvency proceedings to satisfy the satisfaction of its claims. Debtorgenerally keep their property, and as approved by the Courtreorganization scheme, to pay off creditors with the proceeds of their bankruptcy filing, usually extending the debt settlement period. among them,Chapter 13It provides for the bankruptcy reorganization of individual debtors, Chapter 11 provides for the bankruptcy reorganization of commercial organizations, and Chapter 12 provides for the bankruptcy reorganization of individual farmers (the subject of its application must be engaged in agricultural production and operation activities, and more than 80 per cent of its debts must be converted into money for agricultural production and operation).

In addition, Chapter 9 of the Bankruptcy Code provides for the adjustment of the debts of municipalities, and Parts IV and V of Chapter 7 provide for the liquidation of stockbrokers and commodity brokers.

If a Chapter VII liquidation proceeding is not converted from a Chapter 11/12/13 proceeding, the debtor may, on its own initiative, apply for conversion of a Chapter VII proceeding to a Chapter III proceeding, provided that the commencement requirements for a Chapter 11/12/13 proceeding are met (11USC 706(a)).

The Chapter 11 debtor has a one-time absolute right to convert a Chapter 11 case into Chapter 7 liquidation unless:(1) the debtor is not a debtor in possession (debtor in possession);(2) the Chapter 11 case is a Chapter 11 case that has been compulsorily commenced;(3) the Chapter 11 case is converted from bankruptcy proceedings in other chapters for reasons other than the debtor's request. (11USC 1112(a)).

Chapter 11 An interested party in a case of reorganization may file a motion with the court,There are reasons("for cause") to convert a Chapter 11 reorganization case into a Chapter 7 liquidation, or dismissal case (11USC 1112 (B)). 11USC 1112 (B)(4) and Article 2004 of the Bankruptcy Procedure Law list some of the reasons (including the inability to meet the filing requirements in a timely manner).

The Court cannot convert a Chapter 11 case into a Chapter 12 or Chapter 13 case.

Chapter 7 The liquidated person in bankruptcy liquidation may be: an individual, partnership, company or other business entity (11USC 101(41),109(B)). Chapter 7 Liquidation Qualified Liquidators need not be in a non-insolvent or insolvent state, and there is no debt ceiling or floor. The remaining paragraphs of Article 109 enumerate various restrictions on the eligibility of debtors. For example, in the case of an individual bankrupt who has filed a Chapter 7 or any Chapter bankruptcy petition within 180 days before the bankruptcy petition, and has been revoked due to willful failure to attend the proceedings or to comply with court orders, or voluntarily revoked, he may not apply (11USC 109(g),326(d)(e)). Or, if you have received credit counseling services within 180 days before applying, you cannot apply again (11USC 109,111).

Chapter 7 Bankruptcy may be initiated either by the debtor on its own initiative or by creditors under limited conditions. Under article 301 of the Code, a creditor has the right to commence Chapter VII or Chapter 11 proceedings, but cannot compel the commencement of Chapter 12 or Chapter 13 proceedings. 301a provides for the scope of the debtor to which a creditor may compel insolvency.

Chapter VII Liquidation begins with the submission of an application. The application is accompanied by the submission to the court of materials and statements under subparagraph 1007 (B) of the Insolvency Proceedings Act, tax statements under 11USC521, additional statements to be submitted by bankrupts primarily for consumer loans, and so on. Both spouses can apply jointly.

After the debtor voluntarily submits an application, the court issues a relief order. In compulsory bankruptcy, the debtor has the right to reply. A relief order may be issued only if the conditions set out in subparagraph 301(h) have been met.

The filing of an application for bankruptcy, whether voluntary or compulsory, will have the following effects: 1. automatic freezing, I .e. creditors cannot individually enforce the debtor's property; 2. the debtor's debts will be divided into debts arising before the application and debts arising after the application; 3. the bankruptcy consortium (bankruptcy estate) arises and the debtor loses possession of its property, its property is collected and sold by the bankruptcy trustee (in chapter 11, 12, 13 proceedings the debtor will not lose possession and ownership of its property, but the use of its property will be subject to court supervision). Article 541 of the Code defines the scope of the property of the consortium, generally.at the time of applicationAll property, with a few exceptions.

11USC 522b provides for an individual bankrupt's exempt property under Chapter 7 liquidation: States may enact laws to provide for exempt property, and also allow an individual bankrupt to choose exempt property under federal non-bankruptcy law, or exempt property under section 522d of the Bankruptcy Code. However, if state law provides that the exempt property of Section 522d of the Bankruptcy Code cannot be selected, it can only be selected in the first two. Therefore,The specific scope of the exempt property depends on the provisions of state law.

between 21 and 40 days after the filing of the application,bankruptcy trusteeA meeting of creditors will be held (the role of the bankruptcy trustee in the bankruptcy proceedings varies from chapter to chapter. In a Chapter 7 liquidation, the bankruptcy trustee supervises the sale of property and the settlement of debts. The bankruptcy trustee is appointed by the U.S. Federal Trustee (11 U.S.C. 701,704). The U.S. Federal Trustee is a federal government officer, and only in several jurisdictions does the position not exist). If the meeting is scheduled to be held in a place without a U.S. federal trustee, it will be issued in court.Relief Orderheld within 60 days (Federal Bankruptcy Procedure Act 2003(a)). At the creditors' meeting, the debtor takes an oath and the bankruptcy trustee and creditors ask questions. Debtors must attend and answer questions related to their financial situation (11USC 343).

If the individual debtor has non-exempt property and there is no mortgage on the non-exempt property, the non-secured creditor must file a claim with the court within 90 days after the first day of the creditors' meeting (the first date set for the meeting) (Bankruptcy Procedure Act 3002(c)). Government agencies have 180 days (11USC 502 b9).

After the bankruptcy trustee has sold off the non-exempt and unsecured property, the court will issue a claim that is not liquidated in proportion to the liquidation.Bankruptcy Exemption Order. Generally, an insolvency exoneration order will be issued within 60 to 90 days of the first day of the creditors' meeting (LAS 4004(c)). There are multiple exceptions to the bankruptcy exemption, including intentional concealment, transfer, destruction of property and property information and taxes, child support obligations, etc., as set out in 11USC 727, Federal Bankruptcy Procedure Act 4005, 4007(c), 11USC523(a), etc.

Individual reorganization may be subject to Chapter 11 and Chapter 13 procedures.

Chapter 11 reorganization proceedings are mainly applicable to commercial subjects, but the court decision makes it clear that individuals can also apply Chapter 11 reorganization proceedings. Section 109 (e) of the Bankruptcy Code provides for subjects eligible to apply for Chapter 13 relief: only thoseFixed incomenatural persons, at the time of filing the application, are liable not to exceed$394,725of unsecured obligations that have been converted into money and not more$1,184,200determined, converted into moneySecured debt; or with a fixed income other than stockbrokers and commodity brokers.Natural persons and their spousesIn order to become a debtor protected by Chapter 13 of this Act, at the time of filing, there is a determined unsecured debt of up to $250,000 that has been converted into money and a determined secured debt of up to $750,000 that has been converted into money.

Chapter 11 Bankruptcy reorganization proceedings may be initiated by the debtor on its own initiative or, in some cases, by creditors. The chapter mainly provides for the reorganization rules for commercial organizations, with only some provisions making special provisions for individual reorganization.

Chapter 11 Reorganization proceedings begin with the submission of an application by the applicant. After the proceedings have commenced, the parties and interested parties may make a disclosure and solicitation (Solicitation), which requires the debtor to make the necessary disclosures to evaluate the reorganization plan to be proposed by the applicant (11USC 1125). The applicant will propose a reorganization plan, and after the reorganization plan has been accepted by each class of creditors (Acceptance), the court will review the plan and confirm the reorganization plan after review and approval (Confirmation). The reorganization plan confirmed by the court has contractual effect, the debtor's original debts are eliminated, the debts agreed upon in the reorganization plan arise, and the debtor pays off its debts in accordance with the reorganization plan and is exempt from bankruptcy. In practice, small enterprises that apply Chapter 11 are often unable to proceed to the programme approval stage and end up with a Chapter 7 liquidation process, while large enterprises are often able to obtain reorganization relief. The reorganization plan generally stipulates that the debtor will pay off the creditors in a certain proportion within three to five years.

After the commencement of the proceedings, the debtor retains decision-making power in the conduct of routine transactions in the business, while non-routine transactions require court approval. The creditor's claim is automatically frozen, I .e. the creditor may not enforce its claim on its own. The debtor sells, leases, or uses property in which the creditor has an interest, and the creditor may request a court prohibition, or attach conditions (11USC363(e)). The Office does not discuss the creditor's right of avoidance.

A. Reorganization plan

The reorganization plan is the core of the reorganization process. Generally, after making a Chapter 11 applicationDebtorEnjoy the exclusive right to propose a reorganization plan within 120 days. Othershaving an interestA person may make a proposal if (I) a trustee has been appointed:(ii) the debtor has not made a proposal within the 120 and the 120-day period has not been extended; and (iii) the proposal made by the debtor has not been accepted by the classes of creditors whose rights have been weakened within 180 days of his application.In terms of personal restructuringThe law does not set a time limit for filing a reorganization plan, but if the applicant cannotreasonable periodThe proposed reorganization plan will constitute the reason for the conversion or withdrawal of the procedure.

The reorganization plan will be different for different creditors.right of requestandInterestsproceedDivision(11 USC1123(a)(1)). The law does not specify the criteria for classification, so applicants canManipulationThe division of claims and interests to improve the likelihood of adoption of the programme. In order to avoid this phenomenon. Article 1122(a) of the Code states: "Only if an interest is associated with other interests in a particular category.particularly similarThe interest can only be classified in that category if the interest is ". Bankruptcy Code 1123(a)(11) requires that allin the same categoryThe right to request and the interestThe same treatment, unless the individual right holder is willing to accept lower treatment.

Whether the reorganization plan can be used by creditors.AcceptIt depends on the terms of the reorganization plan and the outcome of the negotiations between the two parties. The law provides that if the classification of a right or interest is not subjectWeakeningthe classification will be deemed ("deemed to") to have accepted the proposal (11USC 1126(f)). (Article 1124 of the Code defines weakening, according to which any change in equity can easily constitute weakening, I .e. weakening is presumed, unless the liquidation plan does not change the equity at all.) The right to claim a certain classification is only in the case:The number of recipients is more than half and the share of claims held is at least more than 2/3 of the total., the classification is deemed to have accepted the reorganization plan (11USC 1126(c));The share of claims held is at least 2/3 or more of the total.The classification is deemed to have accepted the reorganization plan (11USC 1126(d)).

The reorganization plan must meet 11USC 1129(a)(1)-(a)(5),11USC 1129(a)(7),11USC 1129(a)(11)and11USC 1129(a)(7)or11USC 1129 (B)Any oneRequirements:

11USC 1129(a):

(1)(2) The person proposing the plan must comply with all provisions of the bankruptcy code, including the information disclosure restrictions set out in Article 1125 and the initiation of the plan approval;

(3) The proposal must be presented in good faith;

(4) The person proposing the programme, the debtor or the person issuing securities for the acquisition of property under the programme must providereasonablethe costs or expenses of the programme or case must be within the scope approved by the court;

(5) The remuneration and identity of any insider to be employed or retained by the reorganization debtor must beDisclosureThe identity of the person responsible for management after approval and his relationship with the debtor must also be disclosed. For a detailed discussion of disclosure standards, see Note,Disclosure, of Adequate Information in a Chapter 11 Reorganization,94 Harv.L.Rev.1808(1981); Phelan & Cheatham,Would I Lie to You? Disclosure in Bankruptcy Reorganizations,9 Sec.Reg.L.J.146(1981);Thimmig,Ade- quate Disclosure under Chapter 1l of the Bankruptcy Code,53 S.Cal.L.Rev.1527(1980).

and:(7) in any of the weakened classifications,Eachholder of interest or claim(I) Accepted the plan, or (ii) The amount of distribution obtained from the plan is not less than the amount that it would have obtained in the case of Chapter VII liquidation procedures

(Note: Acceptance here, meansTrue acceptance., andNot IncludedAccepted by consent of the same level of interestPresumptionacceptance, designed to protectEachINTEREST HOLDERS NOT ACCEPTED-maximum interest criterion).

(8) EveryLevelof the interest holder is not impaired, orAgreeAccept the program.

11USC 1129 (B) provides that the court has aOne or more categories refuse to accept the scenario in case of approvalThe approach of the programme, I .e.Fill rules:

"The programme has no effect on the acceptance of the programme and the rights are subjectWeakeningclaims or interestsCategoryThere is no unfair differential treatment, and it is fair and just." Article 1129 (B)(2) (A), (B) and (C) defineSecured claimants, unsecured claimants and bondholdersWhat kind of plan is "fair and just.

And, according to article 1129(a)(10) of the Code, even if the filling rule applies, only if at least one set of.Weakened Holders of Non-InsidersThe court can confirm the scheme only if the classification of the composition accepts the scheme.

The following discusses the circumstances under which the programme will be fair and equitable:

A. Security rights: 11USC 1129 (B)(2)(A)

1. [Cash Settlement Retention Guarantee] 11USC 1129 (B)(2)(A)(I)

If members of the class are able to retain their security in the secured property and receive a cash settlement, the carrying amount of the cash settlement received is at least equal to the amount recognized.Claim for GuaranteeAmount. If it is paid off at the value of the collateral, it is paid off at the value of the collateral.Previous ValueDischarge.

(The amount of the security claim is the amount of the claim and the value of the collateral.Smaller506(a);)

2. [Sale of Property Secured by Price] 11USC 1129 (B)(2)(A)(ii)

The sale of property, the proceeds of the sale of property as security for the creditor's claim. The settlement of the debt with the price must follow the filled.Current Valuestandard orindeed equivalentStandard.

3. [Replacement Collateral] 11USC 1129 (B)(2)(A)(iii)

If the scheme provides that each member of the category can claim its recognized security through the debtor's"indeed equivalent"to offset the implementation, then the scheme can also be confirmed in this case (11USC 1129 (B)(2)(A)(iii).

The term comes from Inre Murel Holding Corp. In that case, Judge Lerned Hand noted whether the scheme provided the secured creditor with respect to the original security.indeed equivalentTo judge from the following two aspects:

(I) Whether the substitute security will be fully repaid to the debtor;

(ii) the possibility of the creditor being discharged.

Under what circumstances can property be used as a "true equivalent" other than cash? Inre San Felipe Voss,Ltd. The court of the case raised this issue. In that case, the court held that the third-party purchaser'sMarketable securitiesCan be used as a true equivalent. The Fifth Circuit Court of Matter of Sandy Ridge Development Corp recognized that the debtor transferred ownership of the security to the creditor to offset the claim at the fair market price of the security, which also met the "true equivalent" standard. This criterion can also be met if the debtor can provide similar collateral of a value equal to or higher than the original collateral (124Cong. Rec. S. 17420(Oct.6.1978)).

The insolvency law does not define unfair treatment as to the "no unfair differential treatment" standard in this article. The relevant legislative history shows that this standard is used to protect creditors, I .e. to require assurance that it is insame priorityofCategory of creditor's rightsGet the same treatment.

B. Unsecured Claims 11USC 1129 (B)(2)(B)

If a class of unsecured claims refuses to accept the scheme, the debtor cannot provide any satisfaction in the scheme to any subordinate claims or interests that are subordinate to such unsecured claims, unless such objecting class of unsecured claims obtains a distribution of property and the current value of the distributed property is equal to them.Claim to be confirmedAmount.

At present, the construction of personal bankruptcy laws and regulations in China has just started, but the state and local governments have begun to pay attention to this field and actively promote the formulation and revision of relevant laws and regulations. These attempts are of great significance for improving the exit mechanism of market subjects, protecting the legitimate rights and interests of creditors, cracking down on debt evasion and promoting innovation and entrepreneurship. China can learn from the experience of the United States and continuously improve the personal bankruptcy system from the aspects of legislation, supervision, justice and the withdrawal of market subjects, so as to promote the sustainable development of economy and society. In general, the construction of personal bankruptcy laws and regulations in China has made initial progress, and it needs to be strengthened and improved in the future to meet the needs of the development of the market economy, protect the legitimate rights and interests of creditors and bankrupt debtors, and promote the improvement of the exit mechanism of market subjects.

Lawyer Profile

Lawyer of Shandong Zhongcheng Qingtai (Jinan) Law Firm, Master of Laws from Northwestern University, Bachelor of Laws from Ocean University of China, holds a New York State lawyer license and a Chinese lawyer practice license, and has a comprehensive knowledge reserve and understanding of the American legal system. Qiu Xueda's professional fields include cross-border investment, overseas securities issuance and listing, international trade contract drafting and review, general corporate business, civil and commercial dispute resolution, participation in the issuance of a number of overseas bonds or free trade zone bonds and a number of complex construction projects, financial loan contract disputes litigation.