Understanding Bankruptcy Laws

Understanding the implications of bankruptcy laws as they apply to your personal debt situation can prove revelatory. Under the US Constitution, Congress has the power to create bankruptcy laws. That said, it is the Title 11 Bankruptcy Code that contains the key federal statutes governing bankruptcy. Moreover, most bankruptcy law is determined state by state, and differences among state bankruptcy law interpretations can be vast.

Thus, before allocating assets in preparation for bankruptcy, budgeting for a post bankruptcy forecast, or even negotiating with creditors, it makes sense to look at what your particular state defines as bankruptcy under its laws. Look for an attorney with lots of experience in US District Court, and understand the subtleties of reallocating moneys or assets in other states or even other nations.

Under the law, a debtor must hand over acquired or inherited properties (also titles with equity) to a trustee, if said assets are gained within 180 days of filing a petition. In addition, if you receive a judgment of settlement in a divorce or otherwise gain cash settlements during civil disputes, these moneys can similarly be reallocated to your trustee if they are collected within 180 days of creating a bankruptcy estate.

Debtors count on bankruptcy laws to protect them against further harassment and dogging by creditors. So-called “stays” legally prevent creditors from enjoining for repayment. In terms of which assets are exempt and which assets are accessible to creditors, the law provides a large body of precedent. That said, there is some leeway.

In terms of collateral arrangements, creditors can seize secures assets, even if they lose the unsecured proportion of a secured loan. For instance, if you have a $200,000 loan secured by some collateral worth $150,000, a creditor may be guaranteed $150,000 from the resale of that collateral but may lose the $50,000 of unsecured debt over that amount. Creditors and buyers alike are typically advised to game out various exemption strategies and payback scenarios and to communicate these ideas with their attorneys prior to the dispensation of the estate to the trustee.