Small Business Bankruptcy

Each year, tens of thousands of individuals and businesses file for bankruptcy. The right to bankruptcy relief and debt relief is actually guaranteed in the U.S. Constitution. The bankruptcy system allows you to discharge (extinguish) many of your debts. A bankruptcy can give you a "fresh start" and a second chance at the American dream without being pestered by bill collectors and without having to pay out enormous sums for past debts.

Understanding the bankruptcy system
Although the best-known feature of the bankruptcy system is the discharge of debts, our federal bankruptcy system also has the important goal of the orderly payment of creditors. The system imposes a "share and share alike" philosophy on creditors rather than rewarding the swiftest creditor or the creditor who is able to exert the most pressure on the debtor. Businesses will always fail in a competitive economy, and the bankruptcy system is designed to minimize the social costs that result from such business failures.

Important terms
There are two important figures in a bankruptcy proceeding that you need to be familiar with:

• Debtor: The party filing for bankruptcy. He or she is a party who owes something of value--usually money--to a creditor.
  
  
• Creditor: A party to whom something--usually money--is owed. Creditors may be secured or unsecured. A secured creditor has collateral that guarantees repayment of the debt, but an unsecured creditor has no such collateral to look to. Creditors can be credit card companies, mortgage companies or a neighbor who lent you money.

Why file for bankruptcy?
Before you file for bankruptcy, you need to figure out what bankruptcy will or will not do for you. For example, you will still have to pay alimony and child support after you file for bankruptcy.

Alternatives to bankruptcy
Our bankruptcy system must be viewed in a larger context of insolvency, the inability of an individual to pay his or her bills as they fall due. Individuals and businesses that are insolvent for one reason or another will confront a number of practical and legal problems. Bankruptcy is one solution.

Filing for bankruptcy
Once you have decided that bankruptcy is your best alternative you will need to take a number of steps to commence the action in the bankruptcy court. If you have decided to handle your own bankruptcy, you will need to fill out and file your bankruptcy forms and pay a filing fee to start the bankruptcy proceeding.

Bankruptcy from the creditor's perspective
Hopefully you'll never have to face bankruptcy as a debtor, but chances are you may have to face it as a creditor. If someone who owes you money goes bankrupt, you need to know how to navigate the bankruptcy system and enforce your rights.