Bankruptcy is a legal process that helps companies and individuals clear out or help them manage their debt repayments. It can also be a way for any business to liquidate its assets in an orderly manner.
- Are you having problems clearing your debts?
- Your business accruing losses and is not in a state where it can continue?
- Are you looking for a fresh Financial start?
- Or Want help to make arrangements to repay your debts?
If any of the above questions ring the bell for you, then my friend, Bankruptcy is the only option for you.
Let’s understand Bankruptcy in a more detailed way.
What Is Bankruptcy?
When an individual, a group of people, or businesses think that they can no longer continue paying their debts, they can file for Bankruptcy. Although there are different types of Bankruptcy covering different types of debts, the main goals remain the same: to get discharged from the Debts and get a Fresh Financial Start.
A Discharge is an order from the Bankruptcy Court that prohibits any action taken by the creditors against the debtors. The action can be anything along in the following points:
- Sending a petition for clearing the debts.
- Debt collection at the doors.
- Collecting discharged debts.
However, there is a catch with the discharged debts. All your debts can be discharged only when you have completed all the terms and conditions or have agreed with a payment plan. The terms and conditions will vary depending on the types of Bankruptcy you have filed.
Types Of Bankruptcies
Bankruptcy filing in the USA falls under one of the several bankruptcy codes. Given below are the types of Bankruptcy under which you can file Bankruptcy.
Chapter 7 bankruptcy can be filed when an individual or a business has neither money nor assets to pay up their debts. It allows the debtors to dispose of their unsecured debts and liquidate whatever assets they have left to pay up their debts.
Chapter 9 is available for financially distressed municipalities. Under this chapter, municipalities do not have to liquidate their assets to pay up their debts; instead, they are allowed to have a payment plan.
Chapter 10 is one of the oldest forms of Bankruptcy that has been supplanted by chapter 11. It was meant for corporate businesses.
Filing Chapter 11 bankruptcy shows that you want to reorganize your finance and have a fresh start. It is mostly done by the businesses. This Chapter helps the business cut short on some of their unnecessary financial flows to find new ways to boost business revenue.
Chapter 12 is meant to provide relief to the family-owned farmlands. Here, their assets are not sold; instead, they are allowed to have their businesses but are put under controlled payment plans.
Chapter 13 bankruptcy is the advanced version of chapter 7. If a person who makes a little too much money or has enough assets to clear out their debts falls under chapter 13 bankruptcy. Here banks come with repayment plans and allow the debtors with some years to pay up their debts in the form of installments.
If your business in foreign lands and you want to declare yourself or your business bankrupt, chapter 15 is what helps you out. This type of petition is filed in the debtor’s home country.
How Bankruptcy Works?
If a debtor files Bankruptcy, they must be on a good standing grounds informant of the court. For instance, before they can file for bankruptcy, they need to get counseling from an approved counseling agency within the last 180 days.
Beyond these requirements, each Bankruptcy has different qualifying features. The type of Bankruptcy you can file for will depend on your current financial status and the kind of loans you have.
However, there are few consistencies across all the different chapters. Let’s explore them to have a good understanding.
The Bankruptcy System
The bankruptcy system is quite simple yet complicated. It is controlled by the US bankruptcy court. These types of the court are the subunit of the federal court system. As a result, there is a bankruptcy court for each state under federal law.
In fact, you will find that there are multiple bankruptcy courts in a state. Depending on the population of the state, it can have multiple bankruptcy courts.
Specialized bankruptcy judges conduct bankruptcy courts, and the federal judiciary committees appoint these judges.
In the vast majority of bankrupt cases, a bankruptcy trustee is appointed automatically. The trustees are responsible for taking care of all the documentation and validating its authentications.
When a chapter 7 case is filed, a trustee tries its best to sell any non-exempt property to clear out your debts. And in other cases, the trustee will only oversee the payment plans and coordinate between the creditors and debtor.
The trustee is also responsible for ensuring that there are no fraudulent activities while paying off the debts.
Protection & Discharge
Once the debtors have filed for bankruptcy, the government issues an automatic stay notice that restricts the creditors from taking action against the debtors. Once all the terms and conditions are met, all the remaining debts that were included in the case will be discharged.
Despite discharge being permanent, it does not include everything. There are some debts that are not dischargeable. For instance:
- Tax Debts.
- Child Support.
- Spousal Support.
There you have it; now you know what Bankruptcy is all about and how it works. In this article, we covered the followings:
- Bankruptcy is a legal process to help individuals or businesses to clear up their debts.
- There are seven types of bankruptcy chapters, each covering different types of debts.
- Once you have filed for bankruptcy, the debtors get protection, and once all the terms are met, some of the debts are discharged.