The Stage Setting in a Bankruptcy

If you are facing bankruptcy, here is a rundown on the different personalities involved to smoothen your experience. Knowing what each one does will help you better understand the process.

Key Characters

Center stage will be you the debtor, singularly the main character; because the whole play revolves around the debts you owe but cannot pay.

Next come the creditors - the people to whom you owe money. Creditors are of three categories:

Secured creditors who hold a lien on property or possessions you own as collateral against their claims. Examples of these are mortgage lenders, finance companies, auto lenders, and judgment creditors. Unsecured creditors hold no lien or collateral. These comprise of healthcare providers, credit card companies, and issuers of retail charge accounts. Priority creditors are the same as unsecured creditors only their debts rate priority and are often not dischargeable. Examples are domestic support recipients and tax creditors.

Not a Simple Situation

The people who make a significant presence on a bankruptcy stage are bankruptcy attorneys. Almost every debtor is represented by a bankruptcy attorney because the laws are so complex that it is almost impossible for a layperson to complete a bankruptcy without expert professional aid. Creditors too might be represented by an attorney especially if something out-of-the-ordinary has to happen like a challenge to a discharge.

The Process

In almost every consumer case the court appoints an officer called a trustee. In general the trustee protects the interest of the creditors as a whole, but the role will vary according to circumstances. In a Chapter 7 the trustee will examine the assets belonging to the debtor and select those assets which can be liquidated and the money used to pay off the creditors. In Chapter 13 bankruptcy the trustee will review the debtor's repayment plan and recommend to the court whether to accept or reject it. If the plan is confirmed the trustee pays the various creditors according to the stipulated terms.

In both types of bankruptcies a meeting of creditors called a section 341 is held, over which the trustee presides. The debtor is required to be present to answer questions the creditors might have about his/her financial status.

Checking for Inconsistencies or Fraud

The office of the United States Trustee, a department of the U.S. Department of Justice, appoints all standing trustees. The responsibility for supervising the bankruptcy system vests with the Justice Department. In Chapter 7, its primary function is to examine the application for instances of abuse where a debtor is concealing assets which can be applied toward the payment to creditors. The Clerk of the Bankruptcy Court is in charge of document keeping and all clerical activities associated with the court.

The Buck Stops Here

The whole process is governed by the bankruptcy judge who is the leading decision maker. Since they deal with a specialized area of law, bankruptcy judges are able to mete out a superior category of justice.

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