Bankruptcy Law Explained: An Overview of Financial Restructuring
Bankruptcy law is a complex legal field that provides a structure for individuals and businesses experiencing financial hardship to reorganize their debts or liquidate assets under court supervision. This article aims to provide an overview of the key aspects of bankruptcy law in the United States.
Chapter 7, also known as liquidation bankruptcy, is designed for individuals and businesses with limited assets who cannot repay their debts. The court-appointed trustee sells the debtor's non-exempt assets to pay off creditors. After the sale, the remaining debt is discharged, freeing the debtor from personal liability. [1]
In contrast, Chapter 13, or reorganization bankruptcy, allows individuals with regular income to develop a repayment plan to pay off their debts over three to five years. The debtor keeps their assets and makes monthly payments to the trustee, who then distributes the funds to creditors. [2]
Chapter 11 bankruptcy is primarily used by businesses seeking to restructure their debts while continuing operations. The debtor proposes a plan to pay off debts over a specified period, which must be approved by the creditors and the court. [3]
Bankruptcy law provides a critical safety net for individuals and businesses facing financial difficulties. Understanding the different chapters—7, 11, and 13—is essential to navigating the complexities of bankruptcy proceedings. It is always advisable to consult with a bankruptcy attorney to ensure the best possible outcome in each unique situation.
References:
[1] United States Courts. (2021). Chapter 7: Liquidation. Retrieved from https://www.uscourts.gov/services-and-resources/learning-center/bankruptcy
[2] United States Courts. (2021). Chapter 13: Adjustment of Debts of an Individual with Regular Income. Retrieved from https://www.uscourts.gov/services-and-resources/learning-center/bankruptcy
[3] United States Courts. (2021). Chapter 11: Reorganization. Retrieved from https://www.uscourts.gov/services-and-resources/learning-center/bankruptcy