Bankrupt
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in the overwhelming majority of cases, the Bankruptcy is initiated by the bankrupt individual or organization. In the Old Testament, Moses Laws prescribed one "Holy Year" should take place every half a century, when all debts are eliminated among Jews and all debt-slaves are freed, due to the heavenly command.
In ancient Greece, bankruptcy did not exist. If a father owed (since only locally born adult males could be citizens, it was fathers who were legal owners of property) and he could not pay, his entire family of wife, children and servants were forced into "debt slavery", until the creditor recouped losses via their physical labor. Many city-states in ancient Greece limited debt slavery to a period of five years and debt slaves had protection of life and limb, which regular slaves (mostly war prisoners and people of color imported from the marauders) did not enjoy. However, servants of the debtor could be retained beyond that deadline by the creditor and were often forced to serve their new lord for a lifetime, usually under significantly harsher conditions.
The word bankruptcy is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). A "bank" originally referred to a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange, etc. Hence, when a banker failed, he broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. As this practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banco rotto, broken bench (see e.g. Ponte Vecchio). Others rather choose to deduce the word from the French banque, table, and route, vestigium, trace, by metaphor from the sign left in the ground, of a table once fastened to it and now gone. On this principle they trace the origin of bankrupts from the ancient Roman mensarii or argentarii, who had their tabernae or mensae in certain public places; and who, when they fled, or made off with the money that had been entrusted to them, left only the sign or shadow of their former station behind them.
Bankruptcy fraud is a business crime of filing for Bankruptcy with criminal intent, that is with the intention of evading payment for goods even though the buyer has funds that could be used to pay for them, or accepting payment for goods or services but not supplying them. Common types of bankruptcy fraud include petition mills, false oath, concealment of assets, and fraudulent conveyance.
Multiple filings are not per se fraudulent; as with all things in the law, it depends on the circumstances. Bankruptcy fraud should be distinguished from strategic bankruptcy, which is not a criminal act (but may prejudice a judge against the filer if there is evidence that bankruptcy is being used strategically). Personal bankruptcy is also known as straight bankruptcy or liquidation bankruptcy. Debtors are sometimes required to turn certain property that they owned when they filed their bankruptcy petition, over to the trustee. This property is sold, and the proceeds are used to pay the creditors. This process is called "administration" of the estate. However, in the vast majority of cases the debtor is allowed to keep most, if not all of his or her property. Debtors are required to file a schedule of exemptions in which they may elect to apply certain statutes, known as exemptions, to protect from the trustee and creditors, the equity they have in their property. Exemption statutes typically allow debtors to retain a portion or all of the equity they have in a given type of property like the homestead, a vehicle, household goods, and tools-of-trade. In most cases debtors have few if any assets with equity they cannot protect in this manner (non-exempt assets), and thus in most cases they do not lose anything to the trustee. The list of possible exempt assets differs slightly in each state. It is important to consult a personal bankruptcy attorney to determine what you can and cannot keep.
In most Chapter 7 cases the discharge is entered about 90 days after filing. The discharge is an order by the Bankruptcy court that permanently forbids creditors from attempting almost any act to collect a debt owed by the debtor that existed at the time the case was filed. One example of an act not forbidden by the discharge is the sending of a home mortgage statement to the debtor even though the personal obligation to pay the mortgage has been discharged (see discussion of secured debts below).
The general rule is that all debts are discharged upon the entry of an order of discharge by the court. Unless a debt falls within one of very few exceptions to the general rule, it will be discharged. The court does not normally endeavor to determine which debts are discharged unless the debtor or a creditor files a law suit, known as an adversary proceeding, to determine dischargeability. This is typically left to the debtor and creditor to figure out whether a given debt has been discharged.
Some of the more common debts to be discharged in bankruptcy include credit cards, medical bills, personal loans, liability for negligence, and liability for breach of contract. In Chapter 7, exceptions to the general rule include most student loans, certain taxes, domestic support obligations (like child support and spousal support), fines and penalties owing to the government, and liability for personal injury arising from the operation of a motor vehicle by the debtor while intoxicated. Student loans can be discharged through bankruptcy by filing an adversary proceeding. Some debts will be discharged unless the creditor objects. These include debts arising from fraud, malicious injury to a person or property, and debts (other than support) arising from a judgment of divorce or a marital settlement agreement. Unscheduled debts (debts that are not listed by the debtor in the bankruptcy) are also sometimes not discharged. However, unscheduled debts are discharged as long as the creditor receives notice of the bankruptcy in time to file a proof of claim and in most Chapter 7 cases; it is never too late to file a proof of claim.
To understand how secured debts are treated differently in bankruptcy than unsecured debts, it is important to understand that there are two aspects to a secured debt. A secured debt includes the personal obligations (usually the obligation to pay and to keep the collateral insured) and the security interest. The security interest is what allows the creditor to take the collateral from the debtor if the debtor does not satisfy his or her personal obligations associated with the particular debt. The personal obligations are dischargeable according to the same rules that apply to unsecured debts. However, the security interest survives the discharge in most cases. This means that, while most car loans, home loans, and other secured debts are discharged, the creditor retains the right to take the collateral if the debtor doesn't pay. This may seem like a fine distinction upon first glance, but it becomes critical when the debtor decides after the discharge that the personal obligations are more burdensome than the collateral is worth. For instance, a debtor will be glad for his or her discharge if the car that is collateral for a secured debt gets stolen or wrecked and insurance will not pay off the amount due on the contract.
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