Debts that lead to bankruptcy
There are many debts that cannot be proved against the estate of an insolvent person. These are prescribed claims, unliquidated claims, claims previously given fraudulent preference by the debtor, secured claims where the creditors chose to pursue security and attachments levied, judgments entered, and exceptions issued more than one month preceding the petition for insolvency. In one case, it was held that attachments and judgments which are not provable in insolvency proceedings are attachments levied within one month immediately preceding the commencement of insolvency proceedings and judgments entered in any action filed within 30 days immediately prior to the commencement of the insolvency proceedings. One purpose of the Insolvency Law is to effect an equitable distribution of the insolvent’s property among his creditors. If the insolvent debtor will be allowed to make fraudulent transfers or preferences, the distribution of the insolvent’s estate can no longer be equitable, thereby violating the object of the Insolvency Law.
The debtor may be discharged or released from all obligations prior to insolvency. Some conditions should be satisfied before the debtor’s application for a discharge may be entertained. These are 1) the application must be filed not earlier than three months nor more than one year after the adjudication of insolvency, and 2) the debtor must not have committed any of the acts enumerated by the law to prevent a discharge. Under the Insolvency Law, a debtor may be allowed to petition the court to suspend payment of his debts.
But what if a year after the debtor has been adjudged insolvent and not having paid his debts in full, he was able to acquire an outrageous fortune? Could his creditors successfully sue the debtor for the unpaid balance of his debts? The suit filed by the creditors will not prosper. After an insolvent was given a discharge by the insolvency court, the discharge will operate to free him from paying the unpaid balance of his obligations brought within the jurisdiction of the insolvency court, and also frees his future acquisitions from the payment of obligations to his creditors not fully paid from his assets during the insolvency proceedings.
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