BANKRUPTCY LAW
Bankruptcy laws provide for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors.
This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcies allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.
What is bankruptcy?
Bankruptcy is a way for people or businesses who owe more money than they can pay right now (a "debtor") to either work out a plan to repay the money over time under Chapter 11, 12 or 13, or for most of the bills to be wiped out ("discharged"), as in a chapter 7 case. While the debtor is either working out the plan or the trustee is gathering the available assets to sell, the Bankruptcy laws code provides that creditors must stop all collection efforts against the debtor. When the bankruptcy petition is stamped "Relief Ordered" when you file bankruptcy, you are immediately protected from your creditors.
What are the different "chapters" in bankruptcy laws?
Chapter 7 Bankruptcy is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as "straight bankruptcy" or "liquidation" cases, and may be filed by an individual, corporation, or a partnership. Under bankruptcy laws in chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property as exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership's or corporation's debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.
Chapter 11 Bankruptcy is known as a "reorganization" where an individual or business proposes a repayment plan to the creditors who are owed money before the case is filed. It is designed primarily for businesses, but individuals who do not qualify to file either Chapter 7 or Chapter 13 can also benefit from filing a bankruptcy chapter 11 (for example, if your income is too high for a Chapter 7 and you have more debts than are allowed for a Chapter 13).
Chapter 12 Bankruptcy offers bankruptcy relief to those who qualify as family farmers. There are debt limitations under bankruptcy law in chapter 12, and a certain portion of the debtor's income must come from the operation of a farming business. Family farmers must propose a plan to repay their creditors over a period of time from future income and it must be approved by the court. Plan payments are made through a chapter 12 trustee who also monitors the debtor's farming operations while the case is pending.
Chapter 13 Bankruptcy is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,000,000 ($250,000 in unsecured debts and $750,000 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each bankruptcy chapter 13 debtor proposes a repayment plan which must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a small fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.
While filing bankruptcy without a bankruptcy lawyer may seem right for your situation, you still take chances if you don't have an expert on your side. Bankruptcy lawyers specialize in bankruptcy law litigation and are the wisest option when entering bankruptcy.
Bankruptcy is commonly spelled incorrectly as Bankrupcy and Bankruptsy.
