Bankruptcy is a situation where a person files for insolvency in court, with a declaration of being 'bankrupt'. This situation arises generally when the debtor finds himself in a position where he is unable to pay off his debts. There are two basic methods by which people file for bankruptcy, namely, voluntary and involuntary. Voluntary filing is where the person approaches the court on his own and files for a discharge. Involuntary filing is a situation where the creditors request the proceedings for the insolvent person.
Origin of the Term
In the United States, the doctrine of bankruptcy proceedings is authenticated by Title 11 of the United States code. This code is divided into 15 different categories that contain provisions of the bankruptcy laws. Chapter 7 is a collection of laws that aim at securing the regulations of 'straight bankruptcy'.
How Does it Work?
Chapter 7 proceedings are fairly simple and straightforward. They start with the filing for discharge. This filing can be voluntary or involuntary, as stated above. After the application is received by the court, it appoints a liquidator who is officially termed as a US trustee of assets. The liquidator sells off all non-exempt assets of the filer and retains the assets that are important. The liquidation process commences after official preparation of the Statement of Financial Affairs, which is duly signed by all concerned parties. This signing is followed by the first meeting of creditors, where all trustees and creditors can question the debtor under oath. This has often been termed as 341. Within 60 days of the 341 meeting, the debtor's right to discharge under chapter 7 can be challenged by the creditors, or even by the trustee. In case of no such objection, the proceedings continue.
In accordance with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the debtor needs to attend consumer credit counseling as a part of the filing procedure. After this period of 60 days is over, the trustee begins the liquidation of assets. After about 4 to 6 months, the liquidation of all debt is discharged by the liquidator, and the debtor gets a fresh start.
After the discharge has been obtained from the court of law, all debts are held to be non-existent, and creditors cancel all their financial liability against the debtor.One extreme concern of all petition filers is that whether their family will be affected by this process. The answer to that would be no, but the circumstances will affect them indirectly. In such a scenario, the credit reports and public records of all family members will be safeguarded. The public at large, such as neighbors or relatives, will not even find out about the insolvency. But, these records will stay with all credit reporting agencies, and hence, with current and future employers for the next 10 years.
These proceedings can prove to be a very disturbing experience. Therefore, alternatives and legal assistance should be strongly considered in such cases.