What is Bankruptcy?
Bankruptcy is a system of laws and courts which govern the rights of debtors (borrowers) and creditors (lenders) when a person or company can no longer meet their financial obligations. The framers of the constitution knew the importance of a clean start for our society. Article 1, section 8 of the US constitution grants Congress the power to establish uniform bankruptcy laws throughout the United States.
Bankruptcy is meant to pay out creditors in a fair and uniform way from the remaining assets of the person or company. Once the process is completed the person or company involved is freed of previous financial obligations, even if their prior debts were not paid in full.
Who is affected by Bankruptcy?
Basically anyone can find themselves faced with navigating the bankruptcy system, especially these days. From Donald Trump to former professional athletes to your next door neighbor, bankruptcy is a common avenue for getting back on track.
Bankruptcy filings continued their upward march, nearing 379,000 for the first quarter of 2010, an increase of 17 percent from the first three months of the previous year.
There were more than 6,200 bankruptcy filings per day in February 2010 and nearly 6,900 filings per day in March 2010, according to data from AACER (Automated Access to Court Electronic Records). That compares to less than 5,500 per day in February 2009 and fewer than 6,000 per day in March of the previous year.
California continued to lead the nation in 2010, with more than 59,000 filings for the first quarter of the year. In 2009 more than 1.4 million personal bankruptcy petitions were filed, according to AACER, up nearly one-third over 2008.
This year’s bankruptcy filings are expected to reach at least 1.5 million, which was the annual average before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was approved.
The act — which was based on the assumption that consumers were abusing previous bankruptcy regulations — has meant higher filing fees, a means test for eligibility, counseling programs and an eight-year moratorium before filing again. Consumers rushed to file for bankruptcy before the changes took effect, pushing bankruptcy filings to about 2 million in 2005. The numbers plunged afterward, but they’ve since seen a steady rise. As the impact of the 2005 law works its way out of the system and the impact of the economy continues to wreak havoc on individuals’ wallets, filings have resumed their inevitable climb back upwards.
How does the Bankruptcy process work?
Like any legal process, the bankruptcy process can become quite complicated. The process for each individual bankruptcy is first determined by which chapter of bankruptcy code (law) the financial situation fits into. Here is a quick summary of the common ones:
Chapter 7:
The most common type of bankruptcy, it’s known as liquidation. A trustee is appointed who collects the non-exempt assets of the debtor, sells it and distributes the proceeds to the creditors. The law outlines what is protected from liquidation so it is important to contact an attorney early before you spend money that may be not included in the liquidation process.
Chapter 11 & 13:
In these types of bankruptcies a plan is established where future earnings are used to pay off creditors. There may or may not be a trustee involved in these cases.
For more information on the process and how your situation may be resolved, please contact us today for your clean start.