Bankruptcy laws deals with the effective and applicable use of a plan that allows people, who are unable to pay their creditors, to settle their debts by means of the division of their assets among their creditors.
The interests of all creditors are also allowed to be treated with some measure of equality in the supervised division. To resolve debts, certain bankruptcies allow a debtor to stay in business and make use of revenue generated. Another purpose of bankruptcy law is to allow particular debtors to be free of certain financial obligations they have accumulated once their assets are distributed, although their debts have not been paid in full.
What are the different “chapters” in bankruptcy laws?
There are six different types of bankruptcy provided in the Bankruptcy Code wherein it is identified through the chapter in which it is located. Although, they differ in form and procedure, they all present permanent relief from certain debts.
Chapter 7 is the liquidation chapter and commonly referred to as straight bankruptcy, and may be filed by an individual, corporation, or a partnership. A court appointed trustee will collect and sell all property that is not exempt and to use any proceeds to pay creditors.
Chapter 9 provides for the reorganization of municipalities, including cities, towns, villages, taxing districts, municipal utilities, and school districts.
Chapter 11 is known as supervised reorganization where business is allowed to be maintained while implementing a payment plan confirmed by the court, or an individual whose income is too high for a Chapter 7 and/or whose debts are more than the allowed for a Chapter 13.
Chapter 12 offers bankruptcy provisions to those family farmers and fisherman. Family farmers and/or fisherman must propose a payment plan confirmed by the court to repay their debts over a period of time from future income.
Chapter 13 offers bankruptcy relief to an individual with a regular income, wherein they are permitted to keep their property by repaying creditors out of their future income, usually within three to five years.
Chapter 15 provides to cross-border bankruptcies. It adopts and implements the United Nations’ Model Law on Cross Border Insolvency.