What Is The Purpose of Bankruptcy?
Generally, bankruptcy is a legal process where the debtor is discharged from all his/her debts and allowed to start anew with a fresh start.
The primary purpose of bankruptcy is to provide an honest debtor with a new opportunity. However, it also helps the creditors to receive repayment.
There are two types of bankruptcy cases, namely bankruptcy Chapter 7 and Chapter 12. Both of these are based on the same principle. In either case, the trustee is appointed to liquidate nonexempt property and disburse the proceeds to the creditors. Then, the debtor proposes a repayment plan to repay the debt. The court accepts the plan if the creditors approve it. The plan cannot exceed three years.
The bankruptcy law has evolved to help individuals and businesses overcome their financial troubles. It allows them to restructure their businesses and to continue operating. It also protects the going concern value of the firms in financial distress. It also provides a means of restructuring pre-existing debt.
In the United States, Bankruptcy Code is interpreted by the federal courts. The courts have been very clear in expressing their views about the purpose of bankruptcy. The courts have repeatedly stated that the purpose of the bankruptcy act is to help the honest debtor to a fresh start. In addition, it is meant to remove the discouragement that has been associated with the existence of pre-existing debt.
The bankruptcy law is also designed to prevent fraud. This is a function of the means test, which takes into account the unsecured debts and the assets of the debtor. If the debtor fails to meet the test, he/she can be dismissed from the case. Nevertheless, if the bankruptcy case is successful, it can serve as a stepping stone to future borrowing.
There are certain exemptions that allow the debtor to retain some of his/her basic necessities. These can be found in every state. In some cases, the amount of an exempt item may vary from state to state. These include real estate, automobiles, and jewelry.
There are many reasons why an individual or a business would file for bankruptcy. The most common is a failure to pay a debt. Others may be because of poor planning, or because of severe economic difficulties. In any case, bankruptcy can be a valuable tool in eliminating overwhelming financial obligations.
Disclaimer: This is not legal advice and is simply an answer to a question and that if legal advice is sought to contact a licensed attorney in the appropriate jurisdiction.
If you have any questions or in need a Bankruptcy Lawyer, we have the Best Attorneys in Utah. Please call this law firm for free consultation.
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