What is Bankruptcy?Posted in Bankruptcy, by support
Bankruptcy is the legal procedure by which an individual or a business house can pay off their debts under the supervision of a bankruptcy court or clear off all their debts. According to the federal law the collectors are blocked or prohibited from collecting the debts from the borrowers who are declared as bankrupt. An additional purpose of bankruptcy law is to allow debtors to relieve themselves from the financial burden they have accumulated by distributing their assets even if it does not pay their debts in full.
There bankruptcy proceedings are of two basic types – liquidation and rehabilitation. A bankruptcy proceeding can either be initiated voluntarily by the debtor or can be initiated by the creditors. Once bankruptcy is filed the creditors cannot try to get their claims from the debtor as long as the bankruptcy court doesn’t give its decision.
A filing under chapter 7 is called Liquidation bankruptcy. In liquidation bankruptcy the assets of the debtor is sold off to pay the creditor claims. This involves appointment of a trustee to supervise the collection and selling of the non-exempt assets of the debtor and its distribution among the creditors. Chapter 7 is most widely applicable to individuals. For bankruptcy purpose a married couple may be treated as an individual.
Chapter 11 is suited for the corporate entities and is also known as corporate bankruptcy or reorganization bankruptcy. Chapter 12 deals specifically with Farmer debts. A debtor requires paying some part of his debt from the current wages in chapter 13. The filing initiated by the debtor is called a voluntary petition while the one filed by the creditor is called an involuntary petition. Chapter 11, 12 and 13 allow the debtor to continue with the ongoing activities in the business and use his/her future earnings to pay off the creditors.
By declaring bankruptcy you can prevent foreclosure of your property and also stop disconnection of your utilities. It also saves you from a lot of harassment in the form of repeated phone calls and creditor visits. Most non-bankruptcy procedures by creditors can be prevented by a court imposed stay during this period. But you will have to pay to the creditor in order to keep the collateral owed to the creditor. Also it won’t make you free from your mortgage or any other collateralized loan. You will also have to pay any of your liabilities with respect to child care, alimony, criminal fines or certain types of takes etc.
Recently there have been major reforms in the bankruptcy laws. These reforms have especially revised the guidelines regarding conversion of chapter 7 liquidation to chapter 11 or 13 proceedings. Many anomalies and ambiguities were addressed regarding these issues during the reforms.
Concealment of assets, destroying or hiding of relevant documents, false declarations etc will constitute bankruptcy fraud. Bankruptcy fraud is a federal crime.