Bankruptcy is legal proceedings which involve a person, or a business who is not able to pay its outstanding debts is termed as bankruptcy. In other words, bankruptcy is a legal process that is designed to provide companies with a new start from an unimaginable debt. It not only removes the burden of debt but helps a company to keep its credit flowing in the economy. This system is operated by the USA bankruptcy courts, who are the subunits of the federal courts. In every single state of the USA, Bankruptcy court is present. Debtor and creditor are the two parties involved in bankruptcy. A debtor is the one who owes the money to the creditor. Debtor could be an individual, or a company . A creditor is the company that claims that debtor owes money or property. Debtors can be of two different types, secured and unsecured. In the case of secured debts, creditors possess the legal right of something of a debtor in case he or company do not make payments. A mortgage is one of the examples in this case. In case company or an individual do not pay money then the bank will take the mortgage. Secured debts cannot be fully discharged.
Bankruptcy Types and Procedures
Straight bankruptcy is the one in which al the assets that er in possession of the debtor are forfeited so that maximum obligations of the debtor could be settled. Chapter 7 of the bankruptcy code begins with the petition filed by the debtor in the nearby court of his residence. I the appeal he presents the current possession of liabilities and assets, a schedule of court income and expenditure, financial statement and a program of executory contracts. Trustee of the case must be assigned with tax transcripts debtor has paid for last 5 to 6 years. For filing a case, the court must charge $245, $75 for miscellaneous administrative fees and $15 for trustee surcharge.
Municipal bankruptcy is a federal mechanism that deals with the resolution of civil debts. Chapter 9 of the bankruptcy code explains a metropolitan that includes towns, villages and cities, school districts and taxing districts. A municipality may voluntarily seek protection under bankruptcy code 11 U.S.C. In most of the cases better files a list of creditors along with the petition. If debtor found unable to bring forward the list of creditors then in this case court has th edicsretion that it can fix different time. The bankruptcy code permits objections that are most of the times associated with whether the negotiations have been conducted in good faith or not. Under chapter 9, court fixes the time in the span in which proofs of the claim may be filed.
This is most of the times used by the commercial enterprise who wishes to continue their operations by paying out the creditors according to the approved schedule by the court. In this chapter, the debtor has the right to file a plan according to which he make payments. This schedule will be presented within 120 days of a case filed in the court. The court then may approve or disapprove the plan. A debtor has the liberty that he can leave all those contracts that are associated with leasing and burdensome.
Adjustments of a Debts of Farmer or Fisherman
Chapter 12 of the bankruptcy code deals with the modifications of a debt related to fisherman or farmer concerning regular income and also provide relief in debt to the fishermen and farmers. In chapter 12 debtor proposes a plan that shows how he will pay out his debts over a period. Usually the time that debtor mentions is no more than three years. The trustee in tis chapter has the same duties as the trustees have in the previous types of the bankruptcy.
Rehabilitation with the payment plan for individual or companies with a regular source of income. That individual who has a daily source of income will propose a plan that how he will pay out his debts in full or in parts. It is sometimes also known as wage earner bankruptcy. Once debtor acknowledges the court with his repayment plan tehn court will decide whether approve or disapprove it at a confirmation hearing. This chapter is not like chapter 7, the house that debtor posses will not be taken in this case. However in chapter 7 house that the debtor possesses will be counted in the payment (Process – Bankruptcy Basics, n.d.).
Following are some of the debts that are discharged.
- Credit card debts
- Medical Bills
- Personal acquired loans
- Promissory Notes
- Obligations under contracts and Leases
- Liabilities arising due to car accidents
Once the creditor receives the notice that debtor has filed a case in the court. The attorney who is specialized in such matters will tell the creditor that whether or not he or the company object to the debtor’s bankruptcy. Chapter 13 of the bankruptcy code is more favorable to the creditor but most of the times debtor pursue bankruptcy under section 7 of the bankruptcy code. In chapter 7 debtor surrenders al the property he has to the court trustee. The trustee then liquidates the property and pay out the mount to the priority creditor, and then the remaining will be distributed among other creditors. Following are some of the consequences of bankruptcy (Kelly, 2014).
One often positive consequences of completing the process of bankruptcy is the discharge. It is a permanent order that prevents creditor to collect for the debts you had incurred before you filed for bankruptcy.
Another positive consequence is the automatic stay. Which means that as soon as debtor file a case in the court, the court will issue automatic stay order straight away from that time.
Change in your credit score resulting from filing a bankruptcy case is mixed. Usually, it puts your score to the bottom of the barrel.
American airlines were one of the companies that bounced back from the bankruptcy. The company and its parent company AMR filed for bankruptcy In 2011. By 2014 AMR and US airways formed a merger and became one of the largest airlines named American Airlines Grup.
Many prominent companies of America went down to bankruptcy in the economic recession of 2008. One of them was General Motors, which was founded in 1908. One of the dominant companies operating in America ended up with the debt of $30 billion. The company filed bankruptcy under chapter 11 of the bankruptcy code in 2009. With the help of government funding, the company again started its operation, and it was a matter of time it started making profits. This plan was presented by Jay Alix who was the owner of Alixpartners (Fallon, 2015).
Fallon, N. (2015). Bouncing Back: 5 Big Companies That Recovered from Bankruptcy. Retrieved from https://www.businessnewsdaily.com/8243-businesses-recovered-from-bankruptcy.html
Kelly, A. (2014). Protecting Creditors Rights When a Debtor Files a Chapter 7 or Chapter 13 Bankruptcy. Retrieved from https://www.hg.org/article.asp?id=20439
Process – Bankruptcy Basics. (n.d.). Retrieved from http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/process-bankruptcy-basics.