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Law about Bankruptcy - Essay Example

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Bankruptcy is a legal inability to pay debts. Samuel Blankson (2004) simply described the declaration of bankruptcy as a legal way of cancelling all payment to creditors. It is a way of dealing with debts that one cannot pay. Two main parties are involved in a bankruptcy…
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Law essay about Bankruptcy
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"Law about Bankruptcy"

Download file to see previous pages Most bankruptcies would not only involve one creditor but many. Debts are usually classified as secured and unsecured (Bankruptcy Alberta, n.d.). Secured debts originate from valuable assets that come with a security agreement allowing a creditor to take back the assets if a debtor fails to pay or abide by the terms of the agreement with the creditor. Car leases, home mortgages, rent-to-own and other installment purchase contracts are examples of secured debts. The assets such as the car or house in these contracts are given up as collateral if the debtor is unable to pay. The second type of debts is the unsecured debt. This type of debt includes credit cards, overdrafts and the general day-to-day bills that people pay on a regular basis. These debts are often referred to as trade debts. For secured debts, when a debtor is declared bankrupt, the creditor cannot make him pay and his chance to take back the assets from the debtor is very limited. For unsecured debts, the creditors cannot force a debtor who is declared bankrupt to pay regular bills. Unsecured contracts are terminated by a bankruptcy. If a debtor receives a discharge from bankruptcy, the creditor’s right to collect no longer exists. Several laws including the Bankruptcy Code enacted in 1978 govern all bankruptcy cases. The primary goal of these laws is to give debtors a financial fresh start from burdensome debt. It allows the debtor to start anew, uninhibited by the pressures and discouragements of preexisting debts. The goal to cancel debts is accomplished by a bankruptcy discharge. It is a publication that basically releases the debtor from being liable for specific debts and forbids the creditor to take any action against the debtor to collect those debts. The bankruptcy discharge is in a question-and-answer format. It seeks to provide information regarding the timing of the discharge—which of the debts are discharged and which are not, any objections to the discharge and how the discharge can be revoked. It also includes the actions a debtor can take in the case that the creditor still collects a discharged debt after the bankruptcy is concluded. There are other parties involved in a bankruptcy. Filing a bankruptcy cannot be easily done by any person who wishes to be relieved of debts. He must first be qualified to be declared bankrupt. The party responsible for this is the bankruptcy judge, who functions as a judicial officer. He decides whether or not a debtor is eligible for bankruptcy and whether or not he should be should be discharged of his debts. More often than not, the bankruptcy process is conducted away from the courthouse because it is administrative. In some cases, another party, the trustee is appointed to oversee the case. The trustee is appointed through the United States Trustee Program of the Department of Justice. He administers the bankruptcy and represents the interests of the bankruptcy estate (Shoemaker & Dart, P.S., 2010). By far, there had been many types of bankruptcies but generally, there are three main types. The types of bankruptcies are named after the chapters in which they appear in the Bankruptcy Code. In most resources, these three types of bankruptcies are considered the main types: Chapter 7, Chapter 11, and Chapter 13. The Chapter 7 type of bankruptcy is entitled Liquidation. It is sometimes called “straight bankruptcy” (Adamson, 2011). This involves the sale for cash of nonexempt property (includes such assets as bank accounts, stocks and bonds) and the ...Download file to see next pagesRead More
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