The bankruptcy procedures that can be undertaken for an insolvent company are supervision, financial rehabilitation, administration, winding up and arrangements with creditors. Administration and arrangements with creditors are the bankruptcy procedures which will be taken up in the case of an insolvent individual.
If a third party or the debtor’s shareholders are willing to back the company financially to restore and restructure it, then in such a case, financial rehabilitation may be introduced. For the payment of overdue payments, the court order initiating financial rehabilitation would set a schedule.
The insolvent company need not pay financial sanctions for non-performance from the inception of financial rehabilitation. They also need not pay for overdue performance of its obligations that accrue prior to the initiation of financial rehabilitation. Another advantage with Chapter 7 bankruptcy is that a debtor can continue to pay for a car loan or mortgage on their home by signing a reaffirmation agreement. This is possible because as per the US Government Bankruptcy Code, a debtor may be allowed to retain some or all of his property.
Liquidation is the other name given to Chapter 7 bankruptcy law. The bankruptcy procedure allows a debtor to sell his assets and pay the debts by segregating the proceeds among his creditors. A trustee or special officer is appointed who is known as the bankruptcy administrator in the states of North Carolina and Alabama. The bankruptcy administrator has to supervise the field cases and also the activities of the creditors and debtors.
Cases under this bankruptcy procedure begin with filing of petition in court by the debtor. This should be accompanied by submission of financial records. The financial records must have an income statement, a current balance sheet and also a financial statement. A summary of tax payment also should be submitted to the trustee.
A fee is charged by the court after the petition is filed. After the petition is filed, fees must be paid to the court clerk. The full amount has to be paid by the end of 4 months and it can be paid in 4 installments or less. These fees are meant to cover the filing fee, the trustee’s surcharge and other additional court charges. The court may sometimes decide to waive off the fees completely if the debtor is in a bad financial situation and is not in a position to pay the fees, even in installments.
A form has to be filed after the court charges have been met. This form will indicate a list of creditors, net amount of living expenses and assets owned by the debtor, the frequency and amount of the debtor income, etc. These will determine the type of ruling which the jury will proclaim.