This section is from the book "Cyclopedia Of Architecture, Carpentry, And Building", by James C. et al. Also available from Amazon: Cyclopedia Of Architecture, Carpentry And Building.
The statute law provides a method by which a person can, by giving up all his property and otherwise fulfilling the terms of the law, escape further liability upon ordinary debts. State laws upon this subject are called Insolvency Acts, and are all superseded by an Act of Congress on the subject, the latter being known as a Bankruptcy Act. At present a Bankruptcy Act is in effect. An adjudication of bankruptcy or insolvency may take place upon the petition of a debtor or of his creditors, and thereafter all the property of the debtor is vested by order of court or otherwise in some person appointed by the court usually called an assignee or trustee. By this transfer of property any assignable contract would pass to such trustee or assignee. If the contract is not assignable, it would not pass, but in that case the original contractor, stripped of property and of credit, is not a desirable person with whom to continue relations. For these reasons it is well, as has already been said, to introduce a clause into building contracts that the insolvency or bankruptcy of the builder or owner shall release the other party from further performance.
One who is a creditor of an insolvent has to prove his claim before the court in a formal manner. If one has a large claim against such a person, it is sometimes best to secure counsel, as fraudulent practices, intended to deprive creditors of their dues, are not uncommon.