Understanding The Difference Of Three Chapters Of The Bankruptcy Law

Bankruptcy is the recourse of many people who are buried in debts but without the ability to pay

. Filing bankruptcy is the process that will afford a debtor a really new start. With bankruptcy, collection agents and demand letters will cease. Although there is basic law about the bankruptcy code, there are different supporting statutes from different states of USA. Thus, sometimes what is applicable to one state may not be applicable to another. This will make your filing of bankruptcy complicated. The solution will be to hire a lawyer who is experienced in the statutes of the state where the case is to be filed.

Bankruptcy is about liens or encumbrances. This will cover the expression of interest of the creditor on the property of the debtor. There are three ways by which these liens are obtained. One is voluntary granting of lien by the debtor to the creditor. Second is a result of judicial action of the creditor. The third way is via statute relevant to the status of the creditor.

Three common types of bankruptcy chapters are Chapter 7, 11 and 13. The application of these chapters is case to case so you need to hire your bankruptcy lawyer to determine the chapter that is applicable to your case.

Chapter 7

Chapter 7 is applicable to individuals, business partnership and corporations. Most indebted people and businesses can file under this chapter, with the exception of banks and railroad companies. The debtor is not obligated to appear in court unless an objection to the grant of bankruptcy is raised.

Under chapter 7, the debtor is provided with a court-managed method of selling the remaining assets to be used as payment to creditors. There is a requirement to be eligible to this. This will provide that the income of the debtor falls below the minimum income level of the state. A trustee will be assigned to manage the estate of the debtor. Under the bankruptcy law, there are assets that are protected from being sold; these assets are known as exempt properties. Only the non-exempt properties are sold and the proceeds of the sale will be distributed to the creditors accordingly. This chapter also affords the debtor with a discharge and with this all of the unsecured debts are eliminated. Unsecured debts include credit cards, personal loans, medical and utility bills. Only individuals are given a fresh start and not partnerships and corporations. The reason lies in the possibility of business dissolution.

Chapter 11

Chapter 11 is not as common as chapters 7 and 13. This chapter is considered if the debtor is an individual or a business entity that wishes to continue the operation of its business. With the continuance of the business, the debtor can retain the properties that are needed for the business. The payment plan will only include the amount of debts existing at the time of filing of the bankruptcy. The debtor will need to file reorganization plan, plans are accepted by creditors and the court approves the plan.

Chapter 13

Chapter 13 is invoked by individuals who still have regular income and are with the intention of keeping their non-exempt properties. There is a limit to the level of secured debt. The kinds of income of debtor are in the form of pension, wages, trust fund and family member support. You will only be qualified if your income would be enough to pay your creditors over three to five years. The debtor may be summoned to appear in court in case there is plan confirmation hearing.

Under chapter 13, the individual will be provided with a court-supervised method of debt repayment plan. The debtor is allowed to retain his properties while paying his creditors. Creditors need to confirm the payment plan and the court on the other hand has to approve this plan.

The three chapters may be easy to comprehend but it may not be as simple as they may seem. There are complexities involved which will necessitate that you still hire a bankruptcy lawyer.

by: John Smithes

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