Bankruptcy crimes exist to protect the goals of civil bankruptcy, which is a fresh start for consumers, the reorganization of businesses, and the equitable distribution of a debtor's assets amongst creditors. Almost every bankruptcy crime is preceded by a prior civil bankruptcy case. Consequently, courts have had to organize the coordination of several cases arising out of one bankruptcy.
Under the Bankruptcy Code, a voluntary or involuntary case is commenced by filing a petition with the bankruptcy court. A Chapter 7 or 11 bankruptcy case may be initiated by a voluntary filing by the debtor or by an involuntary filing by the debtor's creditors. Cases under all other chapters may be initiated only by a voluntary petition.
Social Security benefits, company pensions, and 401(k) plans are all shielded by law and are, therefore, not lost to creditors in bankruptcy. Whether that same protection extends to an individual retirement account (IRA) is not clear. The bankruptcy law, which was drafted in the 1970's before IRAs became such an important vehicle for retirement savings, is ambiguous. This has led to contradictory rulings in federal courts around the country.
Chapter 12 is a part of a federal law called the Bankruptcy Code. Debtors and the United States Bankruptcy Courts must follow its provisions. Each Chapter applies to a different type of debtor. For example, Chapter 13 applies to consumers or individual debtors, with regular income who want to repay their debts under a bankruptcy plan. Chapter 12 applies to certain family farmers.
The treatment of tax debts in bankruptcy proceedings is an attempt to reconcile two conflicting policies. The first policy concerns the government's interest in collecting taxes. The second policy concerns the fresh start that bankruptcy is to give honest debtors. Under the Bankruptcy Code, a debtor's ability to discharge any tax debt is based upon the classification of that particular tax debt.