Law & Legal & Attorney Bankruptcy & consumer credit

Bankruptcy Law Background and Overview

Bankruptcy law is a versatile field, as well as pertinent in today's economy.  Bankruptcy provides for the development of a plan that allows a debtor, who could be an individual or a company and is unable to pay his creditors, to resolve debts through the division of assets among the creditors.  The rationale behind the law is to allow the debtor to make a fresh start and not be punished for inability to pay debts.   Depending on the type of bankruptcy that is filed, the law allows certain debtors to be discharged of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.  Some bankruptcy proceedings allow a debtor to stay in business and use business income to pay his or her debts.

Unlike other areas of the law like Family Law, Bankruptcy proceedings are conducted in the United States Bankruptcy Courts, which is in the federal system of courts.   These courts are a branch of the District Courts of The United States.  The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings.  A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors.  Once a debtor decides to file for bankruptcy, creditors are stopped from attempting to collect on their debts.  This stop is automatic and cannot be ignored or bypassed.  Because the debtor is now under the "protection" of the court, he is not allowed to transfer property that has been declared part of the estate subject to proceedings.

There are various types of bankruptcy proceedings, but the most common are Chapter 7, Chapter 11 and Chapter 13.  Chapter 7 and 11 can be filed by companies, while a Chapter 13 is reserved for individuals (however an individual can also file for Chapter 7).  The main difference between each one is that a Chapter 7 allows for a complete forgiveness of the outstanding debts.  The trustee will look at the assets and will wither sell them if the value is as much or more than is owed, and use the funds to pay the creditor.  More likely, the trustee will not seize the asset and will waive all outstanding debt.  Chapter 11 and 13 are designed for restructuring, and allow for the debtor to be placed on a payment plan over a course of several years.  This is designed for the company or individual to still function while paying their debts back, albeit at a much more reduced rate. 

It is the job of the bankruptcy attorney to work with their client and determine which method of bankruptcy is best suited for their situation.  Additionally, the attorney needs to be familiar with the code and understand that not all clients will qualify for a particular filing.  Each filing has its own rules and guidelines.  In order for an attorney to be successful, they need to be adept at negotiations, understanding financial statements, and being able to apply the code to the situation.  There are many different sides of the coin for a bankruptcy attorney; they could represent the individual or company that is filing, they can represent the creditors or bank, or could work on the asset seizure side.  

If you have legal questions regarding bankruptcy law, you should seek legal help from a local attorney.

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