Bankruptcy:

Bankruptcy or Insolvency proceeding is a formal declaration of your assets and liabilities. Declaration is made to protect oneself from threats, coercions, law suit and to avoid continuous harassment. Enough is enough—you want a break—that is bankruptcy.

Declaration of Bankruptcy

This declaration is done either a judicial forum either State (State has its own unique proceeding) or Federal. Federal forum is a preferable for many reasons.

Process of Declaration

It is triggered either voluntarily or involuntarily. Filing a Petition with the District Court commences a case. Sometimes, creditors can also put a debtor in bankruptcy forum, by virtue of an involuntary petition.

Place of Filing

One files in the District where, the debtor either resides, have a domicile, or has a place of business or property in the United States.

Consequence of Filing

Filing of the case is very easy, however the consequences are serious and must be considered in its entirety before venturing. Properties, what you have, expecting and or entitled to are immediately transferred to a legal fictional entity called Estate.

Estate

Estate property is controlled either by you or the Trustee depending the type of Chapter under which you have filed. Control is the key in bankruptcy process as in any act. Level of control varies, depending on the type of bankruptcy filed. Primarily people file petition under Chapter 7, 13 or 11 of the bankruptcy Code. Bankruptcy law book is split into different Chapters and each Chapter lays down different procedures, powers and goal regarding the Petition and its filer.

In Chapter 7, you don’t control your assets, Trustee takes over—expect no mercy from this character. You are though, entitled to certain exemptions, which means that the Trustee cannot take those assets from you. Each State has different exemptions and also there are federal exemptions.

In Chapter 11, you or your company, the filer becomes the trustee, it is the safest filing as you control, however its very complex and is a resort for people with lot of debts and immediate need to restructure.

In Chapter 13, you are again in control of your assets, however under strict and direct supervision of a Chapter 13 Trustee. Here Chapter 13 trustee might not be that lethal as Chapter 7 Trustee, as you can always dismiss your case and take full control, however you have to be transparent about your assets and liabilities.

Bankruptcy Type

Ultimately, it depends on what you are trying to accomplish.

If you have desire to retain assets, more than your exemptible share, then Chapter 7 is ruled out. If you do not have any extra assets, then Chapter 7 is your petition.

However, people facing foreclosure and or other possible loss of assets, that you wish to preserve, then Chapter 13 might be your answer. But there are limitation to its eligibility. Your company cannot file Chapter 13 as only humans are allowed to seek its protection. Chapter 11 is for corporate entities and for persons not qualified for Chapter 13 case.

Estate Activities

Once you are in bankruptcy, marshalling of assets takes place. Trustee or you will be asked to show what you have and what you owe. In Chapter 7 case, the Trustee will sell what you are not entitled. In 13, you will propose a plan and pay the value of what you are keeping, other than exempted assets. Chapter 11 follows the same route and principle.

Be Careful

Bankruptcy process has several pitfalls, you have to be very careful, while planning, executing and retrenching from this federal bankruptcy forum. For a detailed reading of bankruptcy law, please visit “Bankruptcy Pundit.”