bankruptcy

About bankruptcy
Bankruptcy is a legally declared inability or impairment of ability of an individual or organizations to pay their HYPERLINK "http://en.wikipedia.org/wiki/Creditor" \o "Creditor" creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed. In the majority of cases, however, bankruptcy is initiated by the debtor (the bankrupt individual or organization).
Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.
The primary purpose of bankruptcy is: (1) to give an honest HYPERLINK "http://en.wikipedia.org/wiki/Debtor" \o "Debtor" debtor a "fresh start" in life by relieving the debtor of most HYPERLINK "http://en.wikipedia.org/wiki/Debt" \o "Debt" debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has the means available for payment.
Bankruptcy allows debtors to be discharged from the legal obligation to pay most debts by submitting their non-exempt assets, if any, to the jurisdiction of the bankruptcy court for eventual distribution among their creditors. During the pendency of a bankruptcy preceding the debtor is protected from most non-bankruptcy legal action by creditors through a legally imposed HYPERLINK "http://en.wikipedia.org/wiki/Stay" \o "Stay" stay. Creditors cannot pursue lawsuits, garnish wages, or attempt to compel payment.
Bankruptcy HYPERLINK "http://en.wikipedia.org/wiki/Fraud" \o "Fraud" fraud is a HYPERLINK "http://en.wikipedia.org/wiki/White_collar_crime" \o "White collar crime" crime. While difficult to generalize across jurisdictions, common criminal acts under bankruptcy statutes typically involve concealment of assets, concealment or destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements. Falsifications on bankruptcy forms often constitute HYPERLINK "http://en.wikipedia.org/wiki/Perjury" \o "Perjury" perjury. Multiple filings are not in and of themselves criminal, but they may violate provisions of bankruptcy law. In the U.S., bankruptcy fraud statutes are particularly focused on the HYPERLINK "http://en.wikipedia.org/wiki/Mens_rea" \o "Mens rea" mental state of particular actions. HYPERLINK "http://en.wikipedia.org/wiki/Bankruptcy" \l "_note-0" \o "" [1]
Bankruptcy fraud should be distinguished from HYPERLINK "http://en.wikipedia.org/w/index.php?title=Strategic_bankruptcy&action=edit" \o "Strategic bankruptcy" strategic bankruptcy, which is not a HYPERLINK "http://en.wikipedia.org/wiki/Crime" \o "Crime" criminal act, but may work against the filer.
Bankruptcy prevents a person's creditors from obtaining a HYPERLINK "http://en.wikipedia.org/wiki/Judgment" \o "Judgment" Judgment against them. With a Judgment a HYPERLINK "http://en.wikipedia.org/wiki/Creditor" \o "Creditor" Creditor can attempt to garnish wages or seize certain types of property. However, if a HYPERLINK "http://en.wikipedia.org/wiki/Debtor" \o "Debtor" Debtor has no wages (because they are unemployed or retired) and has no property, they are "judgment proof", meaning a judgment would have no impact on their financial situation. Creditors typically do not initiate legal action against a Debtor with no assets, because it's unlikely they could collect against the judgment.
If enough time passes, generally seven years in most jurisdictions, the debt is removed from the Debtor's HYPERLINK "http://en.wikipedia.org/wiki/Credit_history" \o "Credit history" Credit history.
A HYPERLINK "http://en.wikipedia.org/wiki/Debtor" \o "Debtor" Debtor with no assets or income cannot be garnished by a HYPERLINK "http://en.wikipedia.org/wiki/Creditor" \o "Creditor" Creditor, and therefore the "Take No Action" approach may be the correct option, particularly if the Debtor does not expect to have a steady income or property a creditor could attempt to seize.