It is the bankruptcy law in US that makes it possible for a debtor who cannot pay his creditors, develop a plan to resolve his debts. His resolving of debt is basically done by dividing assets amongst his creditors so that the creditors’ interests are treated equally.
There are also some bankruptcy law proceedings that let the debtor still continue running their business, so that the revenue thus generated can be used to resolve debts. In addition to this, bankruptcy law also rids some debtors of the financial obligations they accumulate, if any debts still remain unpaid after the distribution of their assets.
The passing of bankruptcy law
The bankruptcy law was passed by Congress with the intention of establishing uniform laws on bankruptcy throughout the USA. Though states may not regulate bankruptcy, they pass laws that have effects on the relationship between a debtor and creditor.
All bankruptcy proceedings are regulated in the bankruptcy courts of the United States, which are part of the District Courts of the United States. The United States Trustees were started by Congress to supervise and administer bankruptcy proceedings.
Two types of bankruptcy proceedings
There are basically two proceedings you can choose from in the bankruptcy law. Filings made under Chapter 7 are the most common, and is called liquidation in a bankruptcy proceeding. It involves the appointment of a trustee who will collect the debtor’s non-exempt property and sell it so that its proceedings can be distributed amongst the debtor’s creditors.
Then there are bankruptcy proceedings filed under chapter 11, 12 and 13 which involve the rehabilitation of the debtor that lets him or her use its earnings to pay off creditors. Under all these chapters of bankruptcy law, a trustee is appointed whose duty is to supervise the assets of the debtor.
Decision for bankruptcy may be voluntary or initiated by creditors
The decision to file for bankruptcy, and take up a bankruptcy proceeding can be done voluntarily by the debtor or may be initiated by the creditors. It should be known that according to bankruptcy law, once a debtor opts for bankruptcy, the creditors cannot collect or clear their debts outside of the proceedings.
Moreover, the debtor is not permitted to transfer property that has been declared part of their assets during the bankruptcy proceeding. In addition to this, some pre-proceeding transfers of property, liens and secured interests may get delayed or get considered invalid by filing bankruptcy. There are also some provisions in the bankruptcy law that places emphasis on the creditors’ interests too.
Recent changes to the bankruptcy law
Some recent decisions to the bankruptcy law have extended power to the debtor where assets in Individual Retirement Accounts are protected and exempted from withdrawal from the bankruptcy estate. This thus provides millions of Americans who are closing into retirement, some protection to their lifelong earnings.
Additional changes made to the bankruptcy law entrusts the United States Trustee with the responsibility of supervising some entities with credit counseling before filing for bankruptcy, providing some entities with financial education before getting discharged from debt and to provide a greater oversight of small business reorganization cases.