Blog Details

Author - Associate Shereen Abdin

Bankruptcy is a state in the life of an individual or any entity when they are not able to repay the loans they have taken against their property. Bankruptcy is a method debtors take recourse to in order to seek relief from some of their debts. Debtors initiate the court to declare them bankrupt and thus save them from going to jail and give them time to reorganize themselves.

Bankruptcy can be really frightening it demolishes a person’s existence, it makes a prince a pauper and snatches away all his social status which he may have earned throughout his life. There are certain laws which help one to face the threat of bankruptcy. Given below are some of them which are widely used and are effective too.

• Chapter 7 Bankruptcy, is also known as ‘liquidation bankruptcy’, and is the most frequently used kind of consumer bankruptcy. This kind of bankruptcy absolves you of all kinds of debts and in return, the bankruptcy trustee sells some of your property to pay your creditors. The law also prohibits the trustee from taking any share of the property. Chapter 7 does not allow to make up for those payments which have been missed on secured debt neither does it absolve you of debts like child support and student loans. It can also result in your losing your property, money and assets.
• But if you’re facing a big amount in debt and have not been able to find any solution in spite of your serious efforts then, bankruptcy may be an option.
• Chapter 13 Bankruptcy Code is effective only if the debtor has a regular income then he can keep the property with him and pay debts over a period of time.

If you are an individual or a small business owner, then you will most probably choose Chapter 7 "liquidation" bankruptcy or Chapter 13 "wage earners" or "reorganization" bankruptcy as a desperate solution.

• Chapter 11 and Chapter 12 are similar to Chapter 13 repayment bankruptcy but designed for specific debtors. Chapter 11 bankruptcy is used mainly by large business enterprises it is same as Chapter 13 and is just another form of reorganization bankruptcy.
• Chapter 12 bankruptcy is made for the benefit of small businesses like that of fishermen and farmers. The repayment rules in this plan are more lenient in comparison to chapter 13. It also has higher limits and more options for repayment in lien strippings and cramdowns where the amount borrowed is more in value than the value of the property mortgaged.

So in case of bankruptcy we should be prepared to face and fight it because the law does provide for options to help both the lender and the debtor.

A little alertness and knowledge of the provisions can save a person from complete destruction. There are laws and counter laws to help both, we must take the help of some experts and experienced lawyers who will give us correct guidance. Bankruptcy is a serious matter for the reputation of a person and also for his survival.