Bankruptcy can be traced to ancient times. Records of it are written in the Old Testament where it was ordered by the God of the Israelites for each one to discharge all debts every seven years. There were also provisions for the release of debt slaves and foreigner debt that were put into place as to give clear directions in the event someone couldn't repay his debt. It is also advised in the Qur'an to allot more time to those who owe you money so as to aid them through this hardship. Modern times have no more changed than the days of old. Today we still have 'fresh start' bankruptcy laws and schemes that can afford us relief from an overburdened budget and we also have programs that allow debtors to pay their debts in manageable increments to their creditors. However, this sameness is not entirely true.
Bankruptcy codes have also changed and they've become more specialized due to necessity and as these safeguards for bankruptcy try to match the pace of new methods of business and the individuals involved in its operations, we find an entirely new body of law that governs those who have fallen into the misfortune of bankruptcy. Let's look into this part of government legislation and get to know the similarities and differences of the Chapters contained in it. Knowing each might prove to be of great help one of these days.
What are the most common types of bankruptcy proceedings and why are they so common?
Chapter 7 bankruptcy
The two most common bankruptcy cases are Chapter 7 and Chapter 13 Bankruptcy. Chapter 7, called entitled Liquidation or straight bankruptcy, gives provision for those who have lost all capabilities to meet and service due payments. These have usually shown that their resources are under 150% of the poverty line for their relative family size and that they are completely unable to repay their debt to their creditors. Once filing for a Chapter 7 has begun, the court will appoint a trustee who will look into the financial dealings and assets of the debtor and as mandated by court, sell these in exchange of cash which will be later distributed among the debtors who have proof of claim. After this is done, the court will issue a bankruptcy discharge, freeing the debtor from all eligible debt.
Chapter 13 bankruptcy
Chapter 13, entitled Adjustment of Debts of an Individual with Regular Income, is not quite similar to Chapter 7 but more people prefer to file this type of bankruptcy proceeding since debtors in a Chapter 13 case retain more control over the property of their estate as compared to a straight liquidation case. Valuable assets such as a house or a vehicle can also be kept, this being a very big point of importance for those filing for bankruptcy. Debtors in a chapter 13 case are also tasked with the responsibility of creation and disclosure of facts and details of an incremental payment plan to its creditors that is subject to approval or reorganization by the court and more often than not, a trustee will again be responsible for disbursement of payment to creditors and assurance that the debtor remains current with payments.
Chapter 11 bankruptcy
The next most common type of bankruptcy process is a Chapter 11 proceeding. Going by the name of Reorganization, Chapter 11 is most commonly used by business enterprises, where floundering businesses and partnerships want to maintain business operations while concurrently making partial payments to its creditors. Being very similar to Chapter 13, the owners of a business must propose a plan of reorganization during the initial 120 days from when the Chapter 13 was started. This plan will be again subject to approval or reorganization by the court. The partial payments agreed upon will be given to the court-appointed trustee who will be responsible for its disbursement to the creditors. The trustee will also maintain his responsibility that all payments are current.
Chapter 9, 12 and 15 bankruptcy
The next three Chapters are not so popular because they are so specialized and often do not apply to the common place, individual or organization. Chapter 9 which is called Adjustments of Debts of a Municipality only services areas such as cities, towns, villages and other areas of this sort. Chapter 9 offers municipalities protection from its debtors. Further, reorganization, refinance of debts, and consolidation of its different administrative parts is considered or further enacted.
Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual income, follows closely to the functions and motions involved with Chapter 11 but its utilization is exclusive to family farmers and fishermen who have a constant source of annual income. Farmers and fishermen who have succumbed to financial downturns may continue the operations of their farms or boats while acting on court-approved plans and making the arranged payments to the always present trustee who continues to distribute these payments to the creditors and make sure that payments are up to date.
Chapter 15, entitled Ancillary and Other Cross-Border Cases, is a recent addition to the rules governing bankruptcy and is more often than not involved with international promotion of cooperation, greater legal certainty and protection and maximization of a debtors assets whether he is a citizen or otherwise.
So from the most popular to the most specific, bankruptcy laws offer relief and protection for those who have yielded to this creature called bankruptcy and now that you know the differences and similarities of each, you'll be able to better understand how it behaves and maybe you'll be better able to avoid it, next time it comes around.