Bankruptcy Law

Bankruptcy Law

Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow 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.

There are two basic types of Bankruptcy proceedings. First you can file under Chapter 7. This is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it, and distributes the proceeds to the creditors. Bankruptcy proceedings can also be filed under Chapters 11, 12, and 13. These involve the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. Under Chapter 12, 13, and some 11 proceedings, a trustee is also appointed to supervise the assets of the debtor. A bankruptcy proceeding can either be entered into voluntarily by a debtor or can be initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding.

Within a reasonable amount of time after a debtor files for bankruptcy, the bankruptcy court must call a meeting of all of the creditors listed in the schedules filed by the debtor. The debtor must attend this meeting, unless he has a valid documented reason not to. If the debtor does fail to attend without this documented reason then there is a strong possibility that they may be denied a discharge from their bankruptcy.

Exemptions

After liquidation of the debtor's assets the US Trustee appoints a trustee to the case. They can either appoint a new trustee or use the interim trustee that was in place at the previous point. In any situation, the trustee takes control over the debtor's property, but an individual debtor is also entitled to exempt certain property and possessions from the bankruptcy. The trustee collects the debtor's estate and is responsible for reducing it to money for the distribution to creditors.

Some of these exemptions are:

1) The Homestead Exemption

2) Motor Vehicles up to $2775.00

3) Household Goods worth up to $450.00

4) Jewelry up to $1150.00(Engagement & Wedding Bands)

The trustee has powers, but in most states a creditor with a non-consumer purchase money security interest may prevail against the trustee.

Debtor's and Creditor's Rights

In this very complicated situation the debtor and creditor both have certain rights and responsibilities that both must adhere to. One of the main rules that favor the creditors is Preference. The debtor can't transfer possessions or make payments that favor certain creditors over one another. This assures that every one that is owed money gets paid their fair share. However, there is one exception to this rule. A debtor may agree to pay a debt owed to a family member, family doctor, or neighborhood banks. This agreement to pay a debt dischargeable in bankruptcy is called a reaffirmation agreement.

Once the debtors assets have been distributed