Bankruptcy - All chapters explained

Get a complete overview of the bankruptcy chapters.

(PRWEB) May 15, 2004 --Bankruptcy is an inability to discharge all your debts as they come due. It is a legal process intended to insure equality among the creditors of a corporation declared in bankruptcy. People want to free themselves of a debt through a bankruptcy discharge. A discharge is operated to prevent the creditors from collecting most of the debts existing on the date on which the petition in bankruptcy was filed. It is used by the corporations and partnerships to liquidate and close their business.

Both debtors and creditors are benefited by bankruptcy in the United States. It is kept in mind that debtors get the required relief from all their debts and that the creditors get all their money paid back from the assets of the debtors which they dont need in future living.

Bankruptcy proceedings are done in 4 different ways. They have been referred as Chapters of the Federal Bankruptcy code.

Chapter 7
This is the most common form of bankruptcy. It is a liquidation proceeding and it is available to all individuals, married couples, partnerships and corporations. Over here, the trustee takes control of the assets which are not exempt, sells them and pays the required amount to the creditors. The debtor is thereafter free from all the debts and starts his life freely from the beginning without any debts.

Chapter 11
This process is used by the corporations or partnerships. In this chapter, the debtor actually remains in possession of his assets and can continue to operate his business. Under this chapter, the debtor proposes a new plan for repayment which is convenient to both debtor and creditor. It is confirmed by the court and binds both debtor and creditor to the terms of payment

Chapter 12
This is a very simple proceeding for the family farmers in which they retain their property and at the same time make payments to the creditors from their future income.

Chapter 13
This is another common proceeding where the debtor retains his property and makes payments of the creditors to the trustee of the Chapter 13. He makes his payments out of the future income over an extended period of time. The amount in this repayment process can range from 10 % to 100 % on the basis of the debtors income. This chapter allows the individuals to save their property from foreclosure and repossessions.