Bankruptcy laws are often complex enough to be comprehended by a consumer, and in most cases professional guidance will be needed to grasp the Bankruptcy laws. Although professional guidance is advisable, and in some cases mandatory, it will serve good purpose to have a brush up with bankruptcy filing laws.
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What are the laws for filing bankruptcy?
According the latest amendment to bankruptcy laws, a debtor needs to fulfill a laid down criteria for being considered eligible for bankruptcy. An individual needs to undergo credit counseling before declaring bankruptcy.
The government approved and recognized counselors weigh a debtor’s income, liabilities, debts and other financial variables before considering bankruptcy as an option. In short, a debtor can be considered for bankruptcy only after going through credit counseling and getting recommended for bankruptcy by an appointed counselor.
The set up
The federal bankruptcy laws fall under title 11 of the United States code. Under the code, there are designated bankruptcy courts to supervise bankruptcy cases. State courts do not have it under their purview to decide upon bankruptcy cases.
The bankruptcy chapters
Bankruptcy filing laws generally link up to bankruptcies as stated under chapter 7, 11 and 13 of the US Code. Here is a look at the laws that relate to each of these chapters:
Chapter 7 bankruptcy law
Also known as liquidation, chapter 7 bankruptcy laws usually discharge a debtor off his personal debts. However, there are chances that some secured debts may not be written off. A trustee, appointed by the law, takes over the assets of the debtor and repays the creditors by selling off these assets.
There is a list of assets laid down as “exempt property”. If you have any assets that fall under this category, you can retain them. Other assets however are sold off by the trustee. So, it should be clearly understood that you stand to lose all or some of your assets under chapter 7 bankruptcy.
The biggest advantage of chapter 7 bankruptcy is that your creditors and lenders are disallowed to claim debts or amounts outside the purview of the bankruptcy procedures.
There are some however some criterion that needs to be fulfilled before being considered for chapter 7 bankruptcy. The most significant consideration is the income slab of the debtor, which needs to fall under a prescribed slab in order to qualify for chapter 7 bankruptcies.
Chapter 11 bankruptcy law
Chapter 11 bankruptcy is more suited for businesses and corporates, and is also known as “reorganization”. Individuals can also file for chapter 11 bankruptcy, especially those who have outstanding debts that exceed the limits as prescribed under chapter 13.
Generally, a debtor is not required to sell his/her assets under chapter 11. The financial status of the organization in debt is evaluated and a settlement is then floored to the organization and its creditors. If all the creditors agree upon the settled debts, which are generally reduced in comparison to the original outstanding amount, a contract is drawn out between the creditors and the debtors stating terms of repayments etc. Repayment plans can include a share from the future profits, selling off some or all assets or even any unification with other companies.
If however, the debts are too high as compared to the assets of the organization, selling off assets may be called for. Creditors who provide secured debts such as banks etc generally get a larger share in the repayment plans formulated under court supervision.
Chapter 13 bankruptcy law
Chapter 13 bankruptcy is applicable to debtors with a steady income, and whose debts fall within well-defined ranges, the ranges being different for secured and unsecured debts.
Under chapter 13, you file a bankruptcy petition along with a recommended payment plan to the court. A trustee, appointed by the court, analyses the feasibility of the plan before putting it across to your creditors, who have a right to challenge the plan in the court.
Once the creditors approve the plan (or as decided by the court), you make regular payments under the trustee’s supervision while holding on to your assets and property. The payment period generally ranges from 3 to 5 years.
A point to note
According to bankruptcy laws, you cannot file for another bankruptcy under any chapter if you:
Willfully failed to appear in court for a previous bankruptcy hearing within 180 days prior to again filing bankruptcy, or did not follow the orders of the bankruptcy court in the previous bankruptcy case and 180 days prior to again filing bankruptcy.