Bankruptcy and Beyond
The Bankruptcy Section was revised when the new regulations took effect on October 17, 2005
First, bankruptcy is a complex and very serious legal issue. A person contemplating bankruptcy should contact a legal firm that is competent to handle the type that is best for that person.
What follows is a simple and basic background on bankruptcy and what are the general causes. The site does not provide legal advice. Nor should the content be relied upon to make decisions about the legal status of financial condition.
Please contact and rely upon legal advice from a certified bankruptcy attorney in your area.
Bankruptcy:
A condition, either voluntary or involuntary, in which a person or business (incorporation) cannot meet its financial (money owed / debt) obligations and petitions a federal district court for either reorganization of its debts or liquidation of its assets. In the action the property of the insolvent debtor is placed under the control of a receiver or trustee for the benefit of the creditors. This action is conducted as prescribed by the National Bankruptcy Act and the exemptions allowed by the state laws.
Chapter 7:
Chapter 7 bankruptcy allows a debtor to liquidate its assets (minus those exempted by your state) upon deciding that it is not capable of paying the debt it has accrued. Once the company's assets have been sold and the funds have been distributed to creditors, it is free from liability.
Chapter 11:
Chapter 11 bankruptcy is reorganization, for corporations, partnerships or individuals, whose debts exceed the limits of Chapter 13. The debtor(s) usually remain in possession of the assets and continues to operate, subject to the oversight of the receiver or trustee of the court and creditors.
Chapter 12:
Chapter 12 was added to the Bankruptcy Code in 1986 and is only available to persons who meet the definition of "family farmer" set forth in the statute. It is closely modeled after Chapter 13, but has strict definitions that must be met in order to qualify.
Chapter 13:
Chapter 13 bankruptcy is a legal plan filed in a federal district court in which the debtor shows how all of his or her disposable income will be used over a three to five year period to pay all mandatory debts -- for example, back child support, taxes, and mortgage arrearages -- as well as some or all unsecured, nonpriority debts, such as all or a portion of medical and credit card bills.
Causes:
While bankruptcies are caused by improper use of credit (usually credit cards) there are other causes. Illness or accidents that result in large medical debts or loss of income for extended periods can place many families into a situation where the only course is relief through bankruptcy.
MSNBC reports that a Harvard University study found that costly illnesses trigger about half of all personal bankruptcies, and most of those who go bankrupt because of medical problems have health insurance.
Acts of God (storms, fires) can be a cause that leaves families and businesses in devastated financial conditions. While there may be special loans that help people and businesses recover from floods and other natural diasters, in many cases other conditions that follow the event prevent an expected recovery.
For businesses, bankruptcy can result from a changing business climate that results in the reduced need for the product or service. A disruption of the supply of components either from a natural occurence (crop failure for example) or from a labor dispute can lead to the financial end of a business.
