The Concept of Bankruptcy Explained
Although we have heard the concept of Bankruptcy many times, and may have a rough idea of what it means, there are many important issues with bankruptcy that people may not have clear. People file bankruptcy through a lawyer when they cannot pay the debt owed to creditors. This way of claiming insolvency is legal. Companies and people claim bankruptcy. In occasion, a creditor may present a petition for a business to claim bankruptcy in hopes that the creditor can recuperate some of its money. This is known as involuntary bankruptcy; however, most times the debtor is the one to initiate the procedure of bankruptcy. When the debtor initiates the process, it is known as voluntary bankruptcy.
Claiming bankruptcy will involve a court procedure between all parties. There are two ways in which bankruptcy law works, by discharging the debt or by restructuring the debt, so the person can repay the debt in increments. There are six types of bankruptcy in the United States. Congress regulates the process, as it is a matter of Federal jurisdiction and a constitutional issue.
The six types of bankruptcy are Chapter 7, Chapter 11, Chapter 9, Chapter 12, Chapter 13, and Chapter 15. Most people are familiar with the first two, Chapter 7 and 13. Chapter 7 is the most common and simple form of bankruptcy. It pertains to individuals and businesses and involves the liquidation of assets; it is straightforward and the quickest way to claim bankruptcy. The liquidated assets are non-exempt and the proceeds are distributed to the unsecured creditors. Most people who think of claiming this type of bankruptcy are in the misconception that they will discharge the debt without liquidating some forms of assets; later, they are surprised when their lawyer explains to them that they have to sell their car or other assets. According to bankruptcy code law, the individual must pass a "means test" to be able to claim this type of bankruptcy. A means test only shows that the person is insolvent. When people cannot file Chapter 7, they will generally be able to file Chapter 13.
In Chapter 13, individuals who have an income are able to undergo a rehabilitation process with a payment plan, tailored to their situation, and eventually will be able to repay the debt. There are limits in the amount of debt, and type. In this type of bankruptcy, the debtor keeps the secured and unsecured property, but must agree to the repayment plan and execute it.
In Chapter 11, pertains more to a reorganization and restructuring of the debt, and is mostly used by businesses and corporation that need to restructure the debt into a payment plan, prioritizing, so they are able to repay it while continuing to be in business and operating. Most people hear of this type in the news when big corporations announce that they have filed Chapter 11. However, certain individuals with a large debt may qualify for this type of bankruptcy as well.
Chapter 9 pertains to municipalities. It is a federal tool to aid in the resolution of a municipal debt. Chapter 12 pertains to families that are farmers or fisherman and designed for their financial rehabilitation. Chapter 15 deals with foreign debtors.
A lawyer will help you determine what type of Chapter you can file. For more information on this topic visit restartcentral.com.