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The Day After; what happens to the Bankrupt Debtor when he files for Bankruptcy

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  2. The Day After; what happens to the Bankrupt Debtor when he files for Bankruptcy

The fear the bankrupt debtor feels the day after filing for bankruptcy is commonplace. Basically, it is fear of the unknown, the feeling of no longer being at the helm of the business while it is continuing on its collision course.

The day after the lawyer has filed for bankruptcy through legal proceedings to the Senior Judge, nothing happens. Business as usual. Nobody takes the helm of the ship.

What are the stages bankruptcy passes through until it is finally born and the helm is taken up again?

a)   Firstly, once bankruptcy has been filed for, nothing changes. Bankruptcy has still not happened. At this time, bankruptcy protection is still provisional, pending the effective birth of bankruptcy itself.

b)   The bankruptcy process changes, is born, once the Court has acknowledged the bankruptcy procedure through a resolution in the form of a court order, and the appointment of a bankruptcy administrator. This is the day bankruptcy is formally born in full force, both protective and oppressive.

i)     The protective action appears when presentation of the formal declaration itself consolidates it. From that moment on, the bankrupt debtor’s assets are protected by an invisible aura that prevents third parties, with some limitations, to pursue their goods individually. Graphically it would be like being stuck in a transparent ball where the creditor’s arrows (demands) bounce off. In clients experiences they describe it as a sweet, reassuring feeling when pressure ceases for a few days.

ii)   The second, oppressive action, to give it a name, comes from the administrator’s hand. Once he has taken on his responsibility, he will instruct the insolvent company on their duties and obligations. Here, the most common question is the following: what can I do or not do, what can the administrator make me do or not do?

c)    We must distinguish the two possible situations which the law provides:

i)     In the case of voluntary bankruptcy, the debtor will retain the power of administration and disposition over his assets, leaving the discharge of these subject to the receiver’s intervention, with his authorization or consent. That is, he can continue in his daily activities, but following the requirements indicated by the administrator in relation to the care of payments and the generation of new obligations.

ii)   In the case of compulsory bankruptcy or cases of liquidation, as a general rule, the debtor’s exercising of powers to manage and dispose of his assets will be suspended and replaced by the receivers. In such cases, the administrator will be the one who will monitor and decide actions to be undertaken during the bankruptcy proceedings. The company director will give up his position and will not retain any powers of management or administration for the company.

Notwithstanding the above, the judge could agree suspension in the case of voluntary bankruptcy or mere intervention in the case of compulsory bankruptcy. In both cases, the agreement should be motivated stating the risks that can be avoided and benefits which can be obtained.

At the receiver’s request and heard by the bankrupt person, the judge may agree, by court order, a change in the intervention circumstances or suspension of the debtor’s powers relating to his assets at any time.

So far we have discussed the question of companies. But, what happens if the bankrupt person is an inheritor? In this case the bankruptcy administration may grant the exercise of powers of authorities and disposition of the estate, without changing the situation.

And finally, what happens when the bankrupt person is an individual, what happens to his inheritance, to his powers? What can he do and not do? In the cases of individuals, the administrator will take possession of his assets and designate a maintenance amount for his subsistence, provided that sufficient funds exist to meet his needs.

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