Last modified: March 20, 2017
Some people or business are no longer able to pay their creditors using their income due to varied reasons. Bankruptcy Laws help them to get a fresh beginning by either liquidating their assets to clear their dues or by creating a repayment plan.
These laws offer protection for businesses and take care of the systematic disbursements to their business creditors by means of reorganization or liquidation of assets. Consequently, the businesses or individuals are forgiven the debts that they don’t have the means to pay off. At the same time, the creditors are able to get back at least some of the outstanding amounts realised by the liquidation available assets. Bankruptcy filing can only be done at federal courts as the state courts have no jurisdiction over bankruptcy.
Bankruptcy filing specifications vary widely from country to country. They are made use of by people and businesses to make a new start, with renewed hope and vigour. In the United States, it can be filed under three main chapters of the Bankruptcy Code. These are: Chapter 7, Chapter 11, and Chapter 13. Chapter 7 involves the repayment of at least some of the debt by liquidating the assets of the person or business. Chapter 11 involves the reorganisation of the individual or business finances. And Chapter 13 is meant for people or businesses that aim to repay the debt over a period of time. This last, with lowered payment plans or debt covenants and liquidation of assets is not carried out in these cases.
The filing of the bankruptcy involves the following legal procedures. The filing of the petition is the first step. This can be done by the debtor or on behalf of the creditors. The former is more common. The next step is the assessment and evaluation of all the assets of the debtor. Then these assets are liquidated. Or, in other words, their market value is realised through sale or auction, and this amount is used to repay a part of the outstanding debt. This process ensures that the debtor is no longer under any obligation to repay the outstanding amounts that were incurred before the filing for bankruptcy. However, the remark remains on the debtor’s credit statements and can cause a problem if new loans or mortgages are needed.
Careful management of finances is essential to avoid bankruptcy. Legal and financial counsellors and advisors can help in this by reorganising the finances according to the availability of resources for repayment. Although filing for bankruptcy may seem less troublesome in the short-term, it will bring in a lot of bad experiences and bitterness that could last a lifetime.
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