What is Bankruptcy Law?
Chapter 7 and Chapter 13
In the midst of these unpredictable economic times, the idea of resorting to bankruptcy as a solution to financial problems has become more and more prevalent. While bankruptcy should not be viewed as a get out of jail free card, the process can help honest debtors obtain a clean slate. Bankruptcy is a legal procedure detailed under title 11 of the United States Code which manages the debt troubles of individuals and businesses. There are several types of bankruptcy cases, and bankruptcy law is evolving on a regular basis. For this reason, it is important to get qualified legal counsel when contemplating this step.
What to file for bankruptcy?
Chapter 7 Bankruptcy
Chapter 7 bankruptcy provides for the liquidation of the debtor’s assets and the distribution of the proceeds among creditors in exchange for the discharge of debts. Though some items may be exempt from this process, the debtor should be aware that they will lose property. Exempt property is determined by the laws of the state in which the bankruptcy is filed. Once a debt has been discharged in a chapter 7 bankruptcy case, no action can be taken by the creditor to collect the debt. Chapter 7 bankruptcy is typically utilized by individuals, though partnerships, corporations and other business entities are also eligible.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as the “wage earner’s plan,” allows debtors with a regular income to keep their property and pay back all or part of their debts over a period of three to five years. Payment plans must be approved by the court and may in no case exceed five years. Unlike chapter 7 bankruptcy, chapter 13 bankruptcy enables debtors to prevent the foreclosure of their homes. If the debtor fails to make payments according to the plan, however, the case may be dismissed or converted to a chapter 7 bankruptcy in which property will be liquidated in order to satisfy debts. Any individual can file chapter 13 bankruptcy as long as their unsecured debts amount to less than $336,900 and their secured debts amount to less than $1,010,650.
Other Forms of Bankruptcy
There are several other forms of bankruptcy law. Chapter 11 bankruptcy provides for the reorganization of a corporation or partnership to allow the continuation of the business while paying back debts over time. Individuals can also file chapter 11 bankruptcy. Chapter 12 bankruptcy is specifically designed to aid the “family farmer” or “family fisherman” with a regular annual income to pay creditors in installments over three to five years. Municipalities may file bankruptcy under chapter 9, and chapter 15 bankruptcy applies to bankruptcy cases which span more than one country.