The Ultimate Bankruptcy Quiz

Bankruptcy law is one of the most complicated types of law, because it involves corporate law, tax law, real estate law and contract law.

Even though commercial bankruptcies make up a very small percentage of the total rate, they can have a huge impact on the economy when a lot of money is involved.

Filing for bankruptcy gives a company legal protection from its creditors. Creditors can then seek compensation only through the bankruptcy process.

A slow decline in revenue, a sudden loss of revenue or a sudden financial loss due to a lawsuit or government fine can all cause a company to file for bankruptcy.

WorldCom filed for bankruptcy in 2002 with $104 billion dollars in assets. Enron held the record from the year before with $64 billion in assets.

The debtor owes the money, while the creditor is owed the money by the debtor. Most cases involve more than one creditor.

We all are aware that if we don't pay our mortgage, the bank has a legal right to take our house in lieu of payment. This is known as secured debt.

The United States Bankruptcy Code governs the laws pertaining to bankruptcy. There are four types of bankruptcy, named for their respective chapters in the code: Chapter 7, Chapter 11, Chapter 12 and Chapter 13.

In the case of Chapter 12 bankruptcy, farm owners can retain ownership of their assets and work out a repayment plan to satisfy their creditors.

In the case of Chapter 11 bankruptcy filing, a business can continue to function while working out a plan to pay creditors. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 limits businesses to 120 days to come up with such a plan.

In the past, corporations would file for bankruptcy in the state with the best terms and conditions. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 instituted a two year residency requirement for filing in any state.

A major part of Chapter 11 bankruptcy law is the debtor's obligation to disclose all of its assets and all of its debts.

A trustee is a court-appointed manager that takes over the running of a company when the court suspects it of fraud or mismanagement during the bankruptcy process.

A company under Chapter 11 can only make regular purchases and sales that are part of its regular business operations. It cannot buy or sell companies, divisions or major pieces of equipment without court approval.

If you have debts but very few assets or little income, you may be considered judgment or collection proof. This means that creditors would have nothing to take from you if they did decided to sue you.

If you are facing possible bankruptcy, make every effort to work out an individual payment plan to pay off your creditors, either by yourself or with the help of a debt management agency.

According to the Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005, in order to qualify for Chapter 7 bankruptcy an individual debtor must show that he has an income less than the median income for a family of the same size in his state .

Many years ago, people in most countries who fell into debt were usually sent to prison, where they of course could not pay their debts. In the United States today, as in most Western countries, falling into debt is not a crime.

The Bankruptcy Reform Act of 1978 established the chapters of bankruptcy that we know today and laid down the conditions and rights of debtors to file for bankruptcy.

This most recent bankruptcy law added guidelines and limitations to the previous laws that seek to protect creditors from financial losses due to the bankruptcy of their debtors.