bankruptcy law so that you can full understand the entire process and why things happen in the way they do. When someone declares bankruptcy they legally declare that there are not capable of paying back monies owed to their creditors. There are two different types of bankruptcy; voluntary and involuntary.

Voluntary bankruptcy is s elf explanatory. In this type of bankruptcy an individual or company willing files for bankruptcy when they have reached the point where they cannot pay the bills they have incurred. Involuntary bankruptcy occurs when the creditors that the monies are owed to file the petition for bankruptcy against the person or company owing the monies.

Bankruptcy is not generally a bad thing as it does have a couple advantages. These include;

• Bankruptcy gives an individual or company to start over having all their debts cleared.
• They remove the legal obligation of the debtor to pay their creditors.

What Goes On During Bankruptcy

If the debtor has any non-exempt assets these have to be submitted so that they can be formerly discharged of their obligation to pay the creditors. If there are assets, the bankruptcy court may hold these to be handed over to the creditors so that they don’t entirely loose. The first step in filing bankruptcy according to bankruptcy law is the filing of a petition. This petition includes the information about the debtor’s financial situation. Married persons can file a petition jointly or separately if only one person needs to file for bankruptcy.

Types of Bankruptcy

There are two main types of bankruptcy; reorganization and liquidation. There is only one chapter for Liquidation in the United States being Chapter 7. You may find persons referring to bankruptcy filing as “filing chapter 7” or “filing for chapter 7”. Reorganization constitutes the other chapters; 9, 11, 12 and 13 being for municipalities, businesses or individuals, family farmers and individual wage earners respectively. After the filing of the petition the assets of the debtor are used to make up the bankruptcy estate. In the case of a short sale the asset being the house may get caught in the petition as the debtors asset but read on to find out more. After this is done a trustee will be appointed to oversee the estate.

1. In liquidation all the assets of the debtor that are not legally protected are sold off in an effort to repay the creditors. They refer to this as administering the Debtor’s estate. Since there will be multiple creditors there will be a pro rata distribution of the amount received after the sale of the assets to ensure that all creditors get a piece of the pie so to speak. For debtors with no assets they have what is called a no asset case.
2. 2.       In reorganization the debtor’s assets and debts are restructured or reorganized. This type of bankruptcy is usually initiated so that the debtor can still keep their assets. What they do is to pay the creditors out of their existing income.

Bankruptcy and Short Sales

In Bankruptcy law when someone files for bankruptcy this disallows the creditor from pursuing the collection of the debt. In terms of a house filing bankruptcy will actually stop the foreclosure process. This provides a good opportunity for both the person purchasing the property and the lender. The lender ben efits because they don’t have to worry about losing the majority of their money if the person indeed goes into bankruptcy.