What Are the Different Bankruptcy Chapters?

What Are the Different Bankruptcy Chapters?

Bankruptcy is a legal process which is initiated by an individual or a business that are unable to pay their debts and want them to be discharged and organized by the court. Bankruptcy offers a chance for a person or a business to start fresh by forgiving debts that simply cannot be paid while giving creditors the opportunity to obtain some repayment depending on the property available for liquidation from the company or the people.

Bankruptcy is a legal process which is initiated by an individual or a business that are unable to pay their debts and want them to be discharged and organized by the court. Bankruptcy offers a chance for a person or a business to start fresh by forgiving debts that simply cannot be paid while giving creditors the opportunity to obtain some repayment depending on the property available for liquidation from the company or the people.

There are mainly three types of bankruptcy laws namely Chapter-7 which involves individual petitions, Chapter 11 which involves business rehabilitation and reorganization petitions and Chapter 13 which involve wage earners plans. Cases of bankruptcy mostly fall under federal law, although some laws may be passed by states which are not addressed by the federal law. Only debtor-creditor cases are handled by special bankruptcy courts nationwide. Any claim related to bankruptcy must be lodged with the United States Bankruptcy Court.

Bankruptcy Petition: The documents filed with the United States Bankruptcy court initiating a bankruptcy proceeding generally includes assets, debts and other liabilities of the debtor Chapter 7: Small businesses and Sole owner ships that do not have a viable future or lack significant assets files Chapter 7 bankruptcy. In this case, all the company's properties are sold to meet debts, and any debts that cannot be covered by asset purchase are released. This is why Chapter 7 is also often referred to as “liquidation" Chapter 7 also operates on the premise that the individual / company do not have sufficient income to repay their debts. Once a company has submitted a Chapter 7, it is not feasible to carry out further business activities, so the company gets dissolved.

Chapter 13: Although a chapter 13 bankruptcy is reserved for consumers, sole owner ships can also file a chapter 13. People present the bankruptcy court with a repayment plan describing how they are going to repay the debts. The amount needed to repay depends on how much the individual earns, how much they owe, and how much property or land they own.

Chapter 11: This kind of bankruptcy is the most complex and time-consuming, and is filed by businesses most frequently. If a business has declared Chapter 11 bankruptcy, it will continue to function, retain all estate ownership, and try to create a plan to pay off its creditors. Chapter 11 does not reject debt commitments, but rather renegotiates, often leading to longer payment windows, lower payments or lower interest rates.