Bankruptcy - Chapter Bankruptcy Filing

jazzynfo | Feb 15, 2010 |

0 Comments | Rating: 0

America has implemented a bankruptcy code, which allows reorganization under the bankruptcy laws prevalent in the country. Chapter 11 is available for every business, sole proprietorship or corporation and to individuals as well. Chapter 7 deals with the liquidation process of the assets of an individual or company to pay off the creditors. Chapter 13 allows reorganization for private individuals with a repayment plan spanning 3-5 years being put together by a court appointed Trustee.

Anyone confused about the different chapters and relevance to different circumstances will do well to read this article, which lays out in simple terms the information you are seeking.

Filing under Chapter 7
Businesses and individuals can file a petition under this chapter. All non-exempt assets of the debtor will be subject to liquidation and the amount collected from liquidating the assets will be used to pay off the creditors. The court will appoint a Trustee to handle the entire process, with the objective being to collect the maximum collectible amount from the liquidation to pay the maximum amount of the debt, preferably the entire debt. The Trustee is not working against the debtor but rather with their interests in mind as well. When the process has been completed, liquidation done and debts paid off to the maximum possible extent, the debtor is sent a discharge notice declaring the cessation of all financial obligations on the debtor's part.

Filing under Chapter 13
Individuals who have accumulated very high debt and are unable to pay the loans off can file for bankruptcy under this chapter, which involves a repayment plan covering a period of 3 to 5 years. Individuals who possess non-exempt property find this chapter ideal for their filing purposes. Individuals with a steady job and regular income can also make use of this chapter to file for insolvency. The Trustee appointed by the court will however, verify if the individual's salary is sufficient to pay the debt off in the time specified.

When an individual files for insolvency under Chapter 13, the court will request a repayment plan. It cannot be just any haphazard plan put together for submission to the court; it has to be in agreement with US federal laws, only then will it get approved. Once the repayment plan is approved, the debtor is bound by agreement with the court to repay the loans within the agreed time period in accordance with the court approved plan.

Filing under Chapter 11
Commercial enterprises can file under this chapter to settle debts through a reorganization plan. This chapter is similar to Chapter 13, the only difference being under Chapter 13 individuals can file, under Chapter 11 business entities can file. The business entity filing under this chapter has to file the repayment plan within 120 days from the date of filing the petition. The court and the creditors have to approve the plan before it can be put into action. Under this chapter the debtor gets to end tedious contracts, rescale operations for profitability and terminate leases.

When you file a petition for bankruptcy, it is a form of protection from creditors, foreclosures and garnishments. However, you need to remember that this action will reflect for 10 long years in your credit report, serious affecting your credit standing.

Nowadays there are plenty of cases when US government has to deal with bankruptcy fraud. People are intentionally filling for bankruptcy order to take advantage of their creditors while being protected by the law. In the world of white collar crimes this is known as planned bankruptcy fraud and is severely punished with 5 years of imprisonment or up to $250,000 USD in fees.