What Does a Bankruptcy Lawyer Do?
A bankruptcy lawyer’s focus is mainly to support clients mitigate, eradicate or continue with bankruptcy via court proceedings. Clients with a bankruptcy lawyer can be individuals or businesses.
Bankruptcy is the inability of a company to pay its debts or liabilities.
Business risks that are too high are usually the cause of bankruptcy. Insolvency (= bankruptcy) means the inability of a company to pay. The company is no longer in a position to meet payment obligations to its creditors.
Reasons for bankruptcy accepted by Lawyer
There are three possible reasons for insolvency in the US insolvency law:
- Insolvency: the company is unable to pay its due debts.
- Impending insolvency: The company will probably not be able to settle its debts when they become due.
- Over-indebtedness: The company’s assets are smaller than its debts. In this sense, assets and debts are not necessarily reported with their balance sheet values but with their actual values. These can sometimes differ significantly from one another (for example, in hidden reserves).
If one of these three cases exists, the management has to declare bankruptcy immediately. If the bankruptcy declaration is not filed or not filed in time, those responsible for this delay in bankruptcy must expect a prison sentence of up to three years.
Insolvency Code in the USA
The bankruptcy code contains essential provisions for bankruptcy proceedings, a procedure of foreclosure through which the insolvent debtor’s creditors receive financial compensation.
The debtor’s assets are transferred to the creditors in a regulated manner, while part of the income is awarded to the debtor to secure his livelihood.
Essential contents of the insolvency regulation are:
- General regulations: such as the goals and procedural principles of insolvency proceedings.
- Opening insolvency proceedings: guidelines on opening requirements, determining the bankruptcy estate (= assets), and the creditors’ rights.
- Avoiding bankruptcy: principles and possibilities of avoiding bankruptcy.
- Administration and realization of the bankruptcy estate: regulations for creating a list of assets, a register of creditors, and realizing the bankruptcy estate.
- Satisfying the creditors: Instructions for establishing the claims and distributing the bankruptcy estate among the creditors.
- Insolvency plan: Requirements for the preparation, structure, and formation of the insolvency plan to carry out the insolvency.
- Remaining debt discharge: Regulations for the exemption of natural persons from residual debt – i.e., those liabilities that cannot be met in the context of insolvency proceedings.
- Consumer insolvency proceedings: Special provisions on bankruptcy proceedings for private individuals.
Types of bankruptcy proceedings
The insolvency regulation established two types of bankruptcy:
- Regular bankruptcy: The prerequisites for regular bankruptcy are companies that work with more than 19 creditors and have current liabilities to pay (salaries, social security contributions).
- Consumer bankruptcy: Consumer bankruptcy is also known as personal bankruptcy and can only be initiated by private individuals.
During the liquidation phase, the insolvency administrator implements the creditors’ meeting resolutions, realizes the existing assets, and adjusts the insolvency table.
Depending on the procedure’s size and the specific circumstances, this phase can take anywhere from half a year to several years. The duration of the procedure depends in particular on whether
- Real estate assets exist
- Debtor claims have to be collected in dispute
- Unique assets and insolvency challenges have to be prosecuted in court
- Several years have to be processed for tax purposes
- The creditor will file a declaratory action against the disputed claim
The insolvency administrator is obliged to submit an interim report on further developments to the insolvency file at regular intervals of 6 months. Most of the time, the bankruptcy lawyer makes these reports available.