bankruptcy Essay -- essays research papers

The original Bankruptcy Act was enacted in 1878. Unlike European countries, American debtors were not punished in any way. Our founders viewed bankruptcy from a different perspective; therefore, they included a provision in the U.S. Constitution, which gives Congress the authority to establish uniform bankruptcy laws. The primary purpose of the Bankruptcy Code is to provide debtors an opportunity for a ‘fresh start’. In order to have a fresh start the debtor is relieved from legal responsibility of past debts. Under the code, debtors are protected against abusive creditor activities. Once a voluntary or involuntary petition is filed, certain actions by creditors are suspended under automatic stay. Both secured and unsecured creditors are suspended from taking any action against the debtor or the debtor’s property. However, actions to recover child support or alimony are not suspended. In a situation in which there are both secured and unsecured creditors, there is a special interest in preventing creditors from obtaining an unfair advantage over other creditors. Unsecured creditors must file a ‘proof of claim’ this document states the amount of the creditor’s claim against the debtor. Secured creditors are not required to file a proof of claim unless the amount of claim exceeds the value of the collateral. Voidable transfers are another form of protection between creditors. Preferential transfers or liens made to a creditor by the debtor within 90 days before bankruptcy can...