Bankruptcy Basics & 2009 Outlook
If a debtor finds they are unable to pay their debts, they may be able to use a form of bankruptcy law resolve the issue. This is done through a supervised division of all their assets among their creditors. The bankruptcy proceedings are supervised by the United States Bankruptcy Courts, and all creditors treated as equally as possible.
There are several ways this can be accomplished. In some cases, the debtor may be able to keep their business going, so they can pay debts with the revenue they receive. Once a debtor goes through the bankruptcy process and assets have been distributed as fairly as can be, bankruptcy law can erase their debts…even if they haven’t been fully paid off. The Bankruptcy Code will be the deciding factor in the prioritization of creditor’s interests.
Two Basic Types of Bankruptcy
Bankruptcy can be something initiated by a debtor voluntarily, or their creditors may initiate it in order to recoup their losses. However, if a creditor initiates a bankruptcy proceeding, they normally can not return to the debtor to try to collect the debt outside of the bankruptcy proceeding. When a bankruptcy is initiated, it will normally fall under two basic types.
Chapter 7: Chapter 7 is also referred to as liquidation, and it’s the most common type of bankruptcy. Under this type of bankruptcy, an appointed trustee will collect all non-exempt property from the debtor, sells it, and uses that money to pay off the creditors. Remember, the priority of how much goes to which creditor is determined by the Bankruptcy Code.
Chapter 11, 12, & 13: Under these bankruptcy proceedings, the debtor is rehabilitated. They are allowed to use their future earnings to pay off their debtors, while their assets are supervised by an appointed trustee.
2009 Bankruptcy Outlook
Right now, there are over 5,000 bankruptcy proceedings filed each and every business day. The outlook doesn’t look so good, consideration many things. For instance, the bankruptcy filing rate has jumped an astounding 54% over the last 12 months. Now, consider there are 250,000 business days in 2009, and you start to get the picture. Robert (Bob) Lawless, a professor of law at the University Of Illinois College Of Law, predicts 1,400,000 bankruptcy filings in 2009. He does go into great detail of possible scenarios in the next year that could sway that number either way; drastically if congress and Obama approve a new law that would allow bankruptcy judges to modify home mortgages.