The Basics of Bankruptcy Law

Everyone has definitely heard of the term bankruptcy.  However, its implications and the processes involved are not very clear for all.  Although bankruptcy is a commonly mentioned term, it is not as simple as it seems.

How should bankruptcy be defined?  In simple terms, it is a legal process that allows businesses or individuals who are stuck in financial crisis to settle their debts under a bankruptcy court’s protection.  Thus, it is considered by most businessmen as a good option should they encounter major difficulties with their businesses. 

The United States Bankruptcy Courts, which are under the District Courts, supervise and litigate all bankruptcy proceedings.  The establishment of The United States Trustees was spearheaded by the Congress to take charge of supervisory and other administrative responsibilities that go with any bankruptcy proceeding. 

These are the two types of bankruptcy that may be filed:

  Chapter 7 bankruptcy 

This basically involves liquidation or selling off of a certain property or properties to be able to pay for the debts.  At the same time, some portion of the returns will be left to the party filing for bankruptcy to allow them to recover financially and possibly start another business or other income-generating activities. 

 Chapter 13 bankruptcy 

This type gives the individual or business bankruptcy filing some years to recover first before payment for the debt is required.  The number of years will depend on the case but, on the average, three to five years is given. 

Whatever the type may be, the target remains to be the satisfaction of the interests of both parties.  As much as possible, all processes should benefit the debtor as well as his creditors.

Moreover, as each type would have its own implications and consequences, it is best that one considers a lot of factors first before even pursuing an application for bankruptcy.  Such legal process must not be done impulsively.

Here are some of the things that a businessman must first ask himself before opting for bankruptcy:

1. Am I qualified? 

Not all financial difficulties in business would qualify the owner for bankruptcy.  The entirety of the business must be analyzed first to identify some other possible ways to straighten things out. 

2. Which type of bankruptcy is most suitable for my situation? 

Again, this should take into consideration the various consequences of each type. 

3. What will happen to my property? 

Of course, one must consider how the entire process will affect his properties.  Is liquidation of property really the best option?

There are still many other things that must be taken into account.  In most cases, the services of a bankruptcy attorney are being sought to be able to arrive at the best decision.

Unfortunately, though, not all debts may be covered by bankruptcy.  Unsecured loans, credit card debts, and those related to medical bills are often at times encompassed.  However, those which have something to do with court decisions like child and spouse support and tax issues are not included.

After all proceedings and negotiations have been made, the debtor normally receives counselling.  Such aims to further educate him on the proper management of finances so as to avoid being in the same situation again.  It is also being emphasized that filing for bankruptcy should not be done habitually since it should just be a last resort.