If you make the decision to file for personal bankruptcy, it's important to understand as much as you can about the process before you start. That way, you won't be in for any surprises.
The most dominant figure in any bankruptcy proceeding is the trustee assigned to your case. The trustee is usually an attorney, and he or she essentially becomes your biggest creditor -- but a creditor with powers unlike any other creditor you have. These are two of the most important powers your trustee can use.
Sometimes a canny creditor will sense that you're heading for bankruptcy and will try to make a grab for an unfair portion of whatever assets you have. In those situations, your bankruptcy trustee has the special power to "strong arm" the creditor back into the same waiting line as everyone else.
For example, maybe you owe a contractor some money for repairs to your roof and you started missing payments. You admit to him that you're in the process of filing bankruptcy -- so he rushes and tries to slap a lien on your house in order to secure your debt to him. Under certain circumstances, the trustee can step in and void that lien. It doesn't erase your debt, but it puts the contractor in the same situation as your other creditors.
Avoidance actions are also often employed against predatory lenders who sometimes loan money against a person's car or house but don't properly file the paperwork. If you have a second or even third mortgage on your property, it's possible that your trustee may be able to void the entire thing if it wasn't properly recorded or "perfected" through the correct procedures.
Many people literally have nothing left over once they get done accounting for their regular expenses to pay their creditors at all. However, if you do have a little savings or some assets that can be sold to partially pay off your debts, your bankruptcy trustee actually has the power to step in and stop a creditor from taking an unfair share of that money. That helps keep the bankruptcy process as fair as possible to everyone involved.
That can sometimes end up surprising the person filing bankruptcy in an unpleasant way. A lot of people, before they reach the state at which bankruptcy becomes inevitable, borrow money from family or friends. It's also not unusual for someone to try to scrape together the money they need to repay those personal loans just prior to filing bankruptcy because they want to preserve the good relationship with those particular friends or relatives.
Unfortunately, those loans are usually considered unsecured by anything of value, like your house or car -- which puts them in the same category as your credit cards -- and they can't get preferential treatment over your other creditors.
The trustee has the power to actually undo whatever financial transfer took place when you repaid the loan -- even though it was prior to your bankruptcy filing. For example, say you couldn't afford to repay your uncle for a personal loan in cash so you gave him your motorcycle instead. That could be considered a type of fraud -- and it's definitely favoring one creditor over another. Your trustee may void the transfer, forcing your uncle to return the motorcycle so that it can be sold and the proceeds distributed according to the bankruptcy laws.
For more information about the ins and outs of bankruptcy, talk to a bankruptcy attorney, such as Dunbar & Dunbar, today about your situation.