Dr. Vook Ph.D - Bankruptcy Law 101: The TextVook

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Bankruptcy Law 101: The TextVook
by Dr. Vook, Ph.D and Charles River Editors

In Bankruptcy Law 101: The TextVook, Dr. Vook, Ph.D steps you through the often overwhelming world of bankruptcy and break it down in a way thats engaging and easy to understand. Hell help you understand exactly what bankruptcy is and what it means for your financial future. From debts and credit scores, to employment, housing and the various chapters, youll learn how to navigate this new territory according to law, and make informed decisions going forward.

Copyright 2011 Vook, Inc.
Compilation copyright 2011 Vook, Inc.
Vook is a registered trademark of Vook, Inc.

Chapter 1

O ver the last few years, millions of Americans have become more familiar with bankruptcy than they would have liked. While this is an unfortunate development, many Americans do not entirely understand how bankruptcy works.

Throughout its existence bankruptcy has carried a stigma that makes people think going bankrupt is worse than it actually is. First, people believe that going bankrupt means they have no money or assets, which could not be further from the truth. In fact, bankruptcy exists to protect a debtors assets. A large majority of people are unaware that many of their debts can be discharged through the process, and they are further unaware of what kind of debts can be discharged. Make no mistake: bankruptcy is a long, very complicated process. But it is there to help get individuals back on their feet, and it offers the chance for businesses to reorganize or dissolve and erase its debts.

Americas bankruptcy laws derive from British common law. Originally, the British devised bankruptcy to help creditors collect debts from debtors, and creditors could literally take the shirt off the debtors back. The first bankruptcy laws would allow creditors to seize all of the debtors money and assets, and if the debtor still had not fully paid off his debts, he would be placed in debtors prison. Meanwhile, the debtors family would still be indebted to the creditor, forced to pay off the debtors debt for him. Eventually, the British changed their laws so that a debtors debts were erased when he was let out of jail, creating the first discharge provision.

Another important feature of the first British bankruptcy law is that it was involuntary for debtors. Since it was a creditors remedy, it was a creditors right of action, which meant they could initiate the bankruptcy. Involuntary bankruptcy proceedings are still allowed in some bankruptcy proceedings in the United States today, letting creditors file bankruptcy against the debtor.

Over time, however, bankruptcy began to protect debtors. Creditors could no longer take the shirt off the back of a debtor, nor could they take certain other vital assets. From there, bankruptcy law in the United States has continued to evolve, with further protection for debtors. Some states have even enacted their own laws allowing for proceedings similar to bankruptcies for debt relief, though technically they are not bankruptcy proceedings.

This Vook looks at modern bankruptcy law in the United States, beginning with a look at the common terms that are used throughout bankruptcy proceedings, such as stays and trustees. From there, we will break down and analyze the steps of bankruptcy proceedings, beginning with the role of trustees and looking at the different choices available to the debtor.

Depending on what the debtor wishes to accomplish in bankruptcy, there are several different Chapters of bankruptcy, which take their name from their respective chapters in the U.S. Code. The different Chapters are broken down at length, detailing the key similarities and differences among them. And most important of all, we will see what assets are typically exempted from bankruptcy proceedings.

Chapter 2

B ankruptcy is a long, elaborate process full of words and terms that many people would not understand without firsthand experience, which is not something anybody strives for. Thus, several of these terms must be explained before diving into an analysis of bankruptcy proceedings.

When a bankruptcy petition is first filed, an automatic stay immediately goes into effect. One of the most important aspects of bankruptcy, the automatic stay suspends all debt collection actions against a debtor, whether it is collection calls or foreclosures. In addition to protecting the debtor from collection efforts, it also assures the creditors that a debtors assets will not be seized before they have a chance to eventually collect what belongs to them.

Once the bankruptcy proceeding has begun, the court has what is called avoidance power. Avoidance allows the court to void transactions made by the debtor shortly before filing bankruptcy if they were done to either shield assets from collection or done to give certain creditors advantage over others. If a debtor makes a payment that favors one creditor over the others, it is called a preference. For example, if a debtor gave a $10,000 watch to satisfy a $1,000 debt and thus had no assets for other creditors, the avoidance power could stop that preference.

Time does not stand still during a bankruptcy proceeding. In many cases, the debtor who has filed bankruptcy will be in the middle of performing contracts that were agreed to before bankruptcy. An executory contract refers to a contract in which the parties to a contract still have outstanding obligations to perform at the time the bankruptcy proceeding started. The debtor (or eventually, his trustee) is allowed to unilaterally reject certain executory contracts and walk away from them.

When individuals file bankruptcy, they usually owe both unsecured and secured debts. This is important because unsecured creditors can only claim from the debtor after all secured creditors have been satisfied.

An unsecured debt is one where the creditor was given no signed document or contract guaranteeing future payment from the debtor. If Adam asks Bob for $10 and verbally promises to pay him next month, Adam still owes the money in bankruptcy but it is an unsecured debt.