Bankruptcy Laws-How Are They different and Which Ones Apply to Whom
In general there are six laws of bankruptcy. These are: Chapter 7,9,11,12,13 and 15. These laws are set up to protect creditors and debtors. There are the different laws because there are different situations which cause one to file bankruptcy. Some of these are for personal bankruptcy, Capters 7 and 11, while some are just for businesses like chapter 11. When and if it comes time for you to file bankruptcy read up and find out exactly which type of bankruptcy you should file and what assets may be at risk.
The Laws Defining Bankruptcy
There are six laws which govern bankruptcy filings. Three of these laws (Chapter 9, Chapter 12 and Chapter 15) are very limited in scope.Chapters 7 and 13 relate to individuals and Chapter 11 is reserved for
businesses.
Chapter 9 bankruptcy relates soles to Municipalities. A municipality is defined as a political subdivision, public agency or instrumentality of a State. This section protects a distressed municipality from its creditors and allows for time to reorganize. There is no provision for liquidating the assets of a municipality.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a new bankruptcy law, Chapter 15. With the increase of multinational corporations, this law was enacted to provide an effective system to handle bankruptcy cases involving debtors or creditors residing or
incorporated in more than one country.
Family Farmers and Family Fisherman can file under Chapter 12 protection. This law was enacted because of the uniqueness and importance of fishermen and farmers. Due to the high level of debt related to these two businesses, fishermen and farmers could be ineligible for bankruptcy protection under individual bankruptcy laws.
Individuals can file for bankruptcy under either Chapter 7 or Chapter 13. The pre-filing requirements for individual bankruptcy includes meeting with an approved credit counseling agency.
The simplest form of bankruptcy is Chapter 7, which is also referred to as liquidation. There is often only one trip to the courthouse. A fresh start is given to the individual by eliminating their debt. This chapter is limited to people who really do not have the ability to pay their debt.The income test is extremely restrictive. Chapter 7 filers usually have very few if any non exempt assets.
Chapter 13 bankruptcy is sometimes referred to as reorganization bankruptcy. The purpose of this section is to allow individuals and small proprietary business owners (not corporations) who have the ability to pay off at least a substantial amount of their debt, time to make the payments. These individuals need the protection of the bankruptcy court. People filing under Chapter 13 typically have non-exempt property they prefer to keep along with stable and regular monthly income. They can pay normal monthly living expenses and still contribute towards their debt repayment plan. Chapter 13 Bankruptcy usually lasts from 3 – 5 years.
Chapter 11 bankruptcy is also used to reorganize business, but may include acorporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the stockholders. In this case, the chapter 11 bankruptcy case of corporation does not put the personal assets of the stockholders at risk other than with the value of their investment in the company’s stock. A sole proprietorship (owner as debtor) does not have an identity separate and distant from its owners. Accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors.