Bankruptcy Law
Bankruptcy is a legal state of affairs in which an individual, organization, or business has formally declared its inability to meet financial obligations to its creditors. It is usually the debtor that initiates bankruptcy procedures. In some cases, however, the creditor or group of creditors may request that a state of bankruptcy be declared as a way to recover at least some portion of what it is owed by the debtor.Purpose of Bankruptcy Laws
There are laws that have been established to set the rules and procedures by which bankruptcies are instituted. The purpose of these bankruptcy laws is to establish a repayment framework that gives creditors assurance that at least partial payment in an orderly fashion, depending on the ability of the debtor to make those payments. For the debtor, bankruptcy laws are meant to provide a fresh start into business or other commercial activities without the crushing burden of debts. These laws are intended to protect honest debtors; in the case of embezzlers and other types of dishonest debtors, criminal law comes into play.
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An individual, organization, or business that has filed for bankruptcy is seeking protection from creditors taking legal action that would hinder the ability of the debtor to carry on business. After bankruptcy proceedings have been initiated, the court will impose a stay on any such action until formal terms have been worked out between the debtor and creditors. Although it may seem like the debtor is using the legal system to escape obligations, this is not the case. Some portion of the debts may be discharged, however, the debtor is usually required to liquidate any non-exempt assets so that the proceeds can be distributed among the creditors.
Chapters of Bankruptcy
In the United States, bankruptcy laws are federal statute laws that are incorporated into the Bankruptcy Code. Bankruptcy filings are always overseen by United States Bankruptcy Courts, although they are usually depend in part on State Laws that pertain to bankruptcy issues. The Bankruptcy Code specifies six Chapters, or types of bankruptcies. Most people have heard of “Chapter 11 bankruptcy," but this mainly applies to business debtors. Personal bankruptcy cases usually fall under Chapter 7 in which individuals or small businesses seek to liquidate their assets, and Chapter 13. The latter concerns businesses or individuals who have a steady source of income and would like to institute a repayment plan.
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