Declaring bankruptcy is one of the many options a debtor can perform when he can no longer meet the terms of his financial obligations to his creditors. In the United States of America, bankruptcy is governed by the US constitution and the Congress has enacted laws that will govern the procedures in the filing of bankruptcy. Some of these laws were short lived. However, there is now a uniform federal law pertaining to bankruptcy which is now an emerging trend in the US. It is no longer considered shameful to file a petition for bankruptcy. Individuals can file bankruptcy under Chapter 7 or Chapter 13 of the Code.If the debtor files under Chapter 7, he surrenders his non-exempt properties to a trustee who shall liquidate and distribute the properties to the creditors while under Chapter13, the debtor retains ownership of his properties but must give a portion of his future income to his creditors.
In filing a bankruptcy which is frivolous and for the sole purpose of evading financial obligations, there are legal implications and can be considered a bankruptcy crime under the provisions of Title 18 of the United States Code. There are also tax implications attached in the filing a bankruptcy and this is governed by the US Internal Revenue Code.
There is also a law that was enacted to prevent the abuses committed by debtors in filing bankruptcy to the detriment and prejudice of the creditors. To address these abuses, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005.
In filing a bankruptcy, the debtor is allowed to retain properties with sentimental value. There are also assets which are protected from being garnished by the creditors such as social security payments, books and unemployment compensation. The tools used in the trade are also exempt.
