Bankruptcy Files
Bankruptcy, legal proceeding instituted when a person or business is unable to pay consumer or business debts as they become due. Almost all a bankrupts assets will be handed over to a trustee to reimburse creditors.
A bankrupt is forbidden by law from certain business activities, such as being a company director. However, bankrupts can obtain a legal discharge from bankruptcy files, with only a limited proportion of debts being repaid.
Early procedures
Debtors who were unable to meet their financial obligations were harshly treated under the legal systems of most countries until relatively recent times. During one period in ancient Rome, creditors were entitled literally to divide a debtors body or to enslave debtors and their families. Under the laws of England in the reign of James I, debtors who were unable satisfactorily to explain their inability to pay were placed in the public pillory. Debtors might be put to death if their failure to pay their creditors was due to fraudulent practices. Savage reprisals of this kind were eventually halted, but for many years British courts ruled that debtors who failed to pay a judgment against them were guilty of a breach of the peace and therefore subject to imprisonment. With the development of more sophisticated trade and commercial practices, steps were taken to ameliorate the condition of defaulting debtors. Since the late 19th century bankruptcy legislation has evolved to permit people who are unable to pay their unsecured debts to be discharged from that responsibility if they were willing to liquidate their non-exempt property for distribution among unsecured creditors. Laws now usually allow a debtor to retain some exempt property in order to permit the debtors family to maintain a minimum standard of living. National exemption laws vary widely in their generosity.
Current practices
Bankruptcy practices differ from country to country. In the United Kingdom, for example, the main options in the case of a company that is insolvent are as follows. Liquidation entails the sale of all the companys assets for cash, which is then disbursed to the claimants in order of their seniority (for example, bondholders before shareholders). In receivership, a receiver is appointed by a senior claimant (often a bank) to run the company. The receiver will decide whether to maintain the company, in order that it may be sold as a going concern or sold in part, or liquidate to realize funds with which to repay creditors. Administration, introduced in the 1986 Insolvency Act, entails the appointment of an administrator, who takes control of the company and works with the interests of all claimants in mind (rather than just the senior claimants). These options vary in their application: companies often put themselves into receivership to give themselves time to order their affairs, whereas liquidation is usually initiated by creditors or receivers.
The Bankruptcy Code in the United States allows insolvent individuals and business debtors to try to reorganize their finances in order to avoid full-scale bankruptcy proceedings under individual or corporate reorganization proceedings. A typical plan under individual proceedings will require payment of outstanding debts from the debtors future income. Corporate proposals may combine payments from sales of some business assets with income from future business operations. Shareholder interests may be restructured through the acquisition of more equity in the company in return for writing off some of the rest.
Purpose
The primary purposes of the laws of bankruptcy files are: (1) to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has the means available for payment. Bankruptcy allows debtors to resolve debts through the division of non-exempt assets among creditors. Additionally the declaration of bankruptcy allows debtors to be discharged of most of the financial obligations, after their non-exempt assets are distributed, even if their debts have not been paid in full. During the tendency of a bankruptcy proceeding, the debtor is protected from extra-bankruptcy action by creditors by a legally imposed stay. The creditor will not be permitted to continue lawsuits, garnish wages, or contact the debtor by phone to demand payment.
Bankruptcy fraud
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 files fraud should be distinguished from strategic bankruptcy, which is not a criminal act.
Personal bankruptcy
Personal bankruptcy files 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, 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.
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