Bankruptcy or bust? Not much of a choice it seems but
fortunately there are things you can do if you are going bankrupt
Will you be a debtor in possession or will you be court
in the act? It pays to earn some credit by being honest.
Bankruptcy, legally defining it, is a declared impairment or
inability of an individual or organization to be able to pay off their
creditors. The creditors can file an ‘involuntary’ bankruptcy petition
against the debtors in efforts to recoup portions of the much they are
owed. However, in the majority of cases, a ‘voluntary’ bankruptcy is
started by the debtor and it is then filed by the bankrupt individuals
or organizations.
You are therefore bankrupt when you, the debtor or one the individual or
organizations you owe (your creditors) present a bankruptcy petition and
a court makes a bankruptcy order. When you present the bankruptcy
petition by yourself to the court it is called a debtor’s petition
(voluntary). When your creditors present the petition it is called a
creditor’s petition (involuntary). A bankruptcy order can be made even
when you, the debtor, refuse to acknowledge the court proceedings or
disagree with them. The only option is therefore to co-operate fully
when the bankruptcy proceedings have started. In disputing a creditor’s
claim, try to enter into a settlement before the hearing of the
bankruptcy petition Attempts to do so afterwards is not only difficult
but also expensive.
In the United States, a bankruptcy matter is usually a matter of Federal
jurisdiction as stipulated by the US Constitution. There are basically
six bankruptcy types located in the United States Code, Title 11, in the
Bankruptcy Code. These are basic individual and business liquidation,
municipal bankruptcy, reorganization or rehabilitation for business
debts or huge individual debt, rehabilitation for fishermen and family
farmers, rehabilitation with a plan of payment for individuals with
regular income sources, ancillary and international cases. The most
common types of personal bankruptcy for individuals are basic individual
and business liquidation and rehabilitation with a plan of payment for
individuals with regular income sources.
In the first case, found in Chapter 7, the debtor surrenders to a
bankruptcy trustee his/her non-exempt property. The trustee liquidates
the property and the proceeds are distributed to the unsecured
creditors. The debtor is in exchange liberated of some debt. However, if
he/she is found guilty of some types of misbehavior, no discharge is
granted. Misbehavior includes concealment of financial records, tax
debts or evasions, child support debts, spousal debts or student loans.
In the second case, found in Chapter 13, the debtor will still retain
ownership over all his/her possessions, but some portion of their income
must be devoted to paying the creditors. This is generally over a period
a 3 to 5 years period. Payment amounts and repayment periods depend on
various factors like debtor's income and expenses and property value.
In a third case, reorganization or rehabilitation for business debts or
huge individual debt, Chapter 11, you as the debtor will regain
ownership and control of your assets and you will be refereed to as
'debtor in possession' (DIP). The debtors and the creditors will usually
work with the court dealing with the bankruptcy and negotiate on a
suitable debt amount for both parties. When the negotiated plan works
out, the debtor continues his/her business at the same time paying the
creditor as agreed in the confirmed negotiation plan.
We hope that this helped you if you are facing going bankrupt.
|