Bankruptcy Flashcards

Questions and Answers

What is bankruptcy?

A legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay.

When you declare bankruptcy, you are said to be what?

insolvent

What does it mean to be insolvent?

You have insufficient income and assets to pay your debts.

What does bankruptcy carry?

serious consequences Signup and view all the answers

What are the two goals of bankruptcy law in the United States?

To protect debtors by giving them a fresh start and to give fair treatment to creditors. Signup and view all the answers

Which of the following are types of bankruptcy? (Select all that apply)

Involuntary bankruptcy Signup and view all the answers

What occurs during involuntary bankruptcy?

Creditors file a petition with the court to declare the debtor bankrupt. Signup and view all the answers

What does the court do if it agrees to an involuntary bankruptcy petition?

Takes over your assets to pay off as much of your debt as possible. Signup and view all the answers

How often does involuntary bankruptcy occur and why?

It does not occur very often, because most creditors prefer repayment over the sale of remaining assets. Signup and view all the answers

What is voluntary bankruptcy?

The most common kind, occurs when you file a petition with a federal court asking to be declared bankrupt. Signup and view all the answers

What does the court decide when you claim voluntary bankruptcy?

How much debt you will pay, what assets you can keep, and what debts will be cancelled. Signup and view all the answers

What is usually true about the value of a bankrupt debtor's assets?

Usually the value of all the bankrupt debtor's assets is not enough to pay off all the debts. Signup and view all the answers

What does the court do with the debtor's assets?

Sells the assets and gives each creditor a share. Signup and view all the answers

What are discharged debts?

Debts erased by the court during bankruptcy proceedings. Signup and view all the answers

What can creditors no longer do for discharged debts?

Seek payment for these debts. Signup and view all the answers

Which of the following debts are not discharged? (Select all that apply)

Child support Signup and view all the answers

After being declared bankrupt, how long before an individual can file for bankruptcy again?

Several years Signup and view all the answers

In the state of Massachusetts, you can claim bankruptcy _ in a lifetime and it must be at least _ years apart.

twice, 10 Signup and view all the answers

Bankruptcy will stay on your credit history for _____ years.

ten Signup and view all the answers

What is liquidation in the context of bankruptcy?

The court sells the debtors' assets to pay as much of the debt as possible, with the remaining debt discharged. Signup and view all the answers

What is reorganization in bankruptcy?

Debtors may keep their property but must submit a payment plan to the court for repaying a substantial portion of their debts. Signup and view all the answers

What is Chapter 11 bankruptcy?

A reorganization form of bankruptcy for businesses that allows them to continue operating under court supervision as they repay their restructured debts. Signup and view all the answers

What is Chapter 7 bankruptcy?

A liquidation form of bankruptcy for individuals. Signup and view all the answers

What does Chapter 7 bankruptcy wipe out?

Most debts in exchange for giving up most assets. Signup and view all the answers

What is the advantage of Chapter 7 bankruptcy?

Immediate debt relief. Signup and view all the answers

It is easy to qualify for Chapter 7 bankruptcy.

False Signup and view all the answers

What is Chapter 13 bankruptcy?

A reorganization (payment plan) form of bankruptcy for individuals. Signup and view all the answers

Study Notes

Bankruptcy Overview

Legal process relieving debtors from debt payment responsibilities or offering protection during repayment.
Declaring bankruptcy indicates a state of insolvency—insufficient income and assets to pay debts.

Consequences and Goals

Bankruptcy serves as a second chance but carries serious ramifications.
U.S. bankruptcy law aims to protect debtors while ensuring fair treatment for creditors handling competing claims.

Types of Bankruptcy

Involuntary bankruptcy: Creditors petition for bankruptcy declaration against the debtor.
Voluntary bankruptcy: Most common; debtors file a petition with federal court.
Chapter 7 bankruptcy: Liquidation form for individuals, erasing most debts in exchange for asset surrender.
Chapter 11 bankruptcy: Reorganization for businesses, allowing operations under court supervision while repaying debts.
Chapter 13 bankruptcy: Individual repayment plan, allowing debtors to retain most assets.

Involuntary Bankruptcy

Rare occurrence since creditors usually prefer complete repayment over asset liquidation.
Court assumes control over the debtor's assets to pay as much debt as possible if petition is granted.

Voluntary Bankruptcy Proceedings

Court determines debt repayment amounts, asset retention, and which debts are canceled.
Typically, debtor's asset value fails to cover total debt.

Debt Discharge and Creditor Rights

Discharged debts are erased by the court, preventing creditors from further collection efforts.
Certain debts remain non-dischargeable, including child support, alimony, income tax penalties, student loans, and court-ordered damages.

Filing Restrictions

Once bankrupt, individuals cannot file again for several years.
In Massachusetts, individuals may file for bankruptcy twice in their lifetime, with a minimum gap of ten years between filings.

Bankruptcy and Credit Impact

Bankruptcy remains on credit history for ten years, affecting the debtor’s creditworthiness.

Liquidation vs. Reorganization

Liquidation involves selling assets to pay debts, resulting in remaining debt discharge.
Reorganization enables debtors to retain property while submitting a payment plan for a significant debt portion.

Chapter 7 Bankruptcy Details

Immediate debt relief with most debts wiped out; however, this requires relinquishing most assets.
Recent laws have increased difficulty in qualifying for this form of bankruptcy.

Chapter 13 Bankruptcy Details

Allows individuals to keep most property while establishing a structured repayment plan to manage debts.

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Description

Test your knowledge on key bankruptcy terms and concepts with these flashcards. Learn about the legal process of bankruptcy, what it means to be insolvent, and the implications of declaring bankruptcy. This quiz will help you grasp important definitions and their relevance in financial contexts.