Bankruptcy is a legal option that can be availed if a debtor is unable to repay his or her loan to the creditor. Although, bankruptcy laws favor a bailout for the debtor and a settlement or consolidation of loss for the creditor, there are times that the creditors themselves approach the courts to declare a debtor or a group of debtors bankrupt to recover their losses faster.
The concept of bankruptcy started in England in 1542, and the bankruptcy law was enacted primarily to protect the interests of the creditors.
Debtors were often penalized with prison sentences, and all properties of the debtors were attached by the creditors. The families of the debtors had to repay the loan and a fine to release the debtor from prison. Over time, the laws of England became a little lenient towards debtors, and many debtors immigrated to America in the 1700s after being released from prisons and settled in the states of Texas and Georgia.
Bankruptcy laws in the United States are enacted to protect the interests of the debtors, mainly, while at the same time, the creditors are protected, to a certain extent, in the consolidation of their losses. Bankruptcy laws in this country help the debtor by writing off his or loan completely - dependant on certain parameters - or help the debtor to restructure his or her loan in a way that repayment becomes easier. Bankruptcy laws in the United States are under federal jurisdiction in the constitution, which allows the U.S. Congress to enact laws governing bankruptcies all over the country. The Congress has formulated a statuette bankruptcy law under bankruptcy code, which can be found at Title 11 of the United States Code. Although, a uniform bankruptcy code/law exists in the United States, and bankruptcy cases are filed in the United States Bankruptcy court; cases are decided based on the laws of the state where the cases are being heard. This is all the more significant in matters of validity, claims and exceptions. A state might have a bankruptcy law that is a slight deviation from the universal bankruptcy law of the country, and this is why laws of a particular state where the cases are being held become important in the final outcome of a case.
Title 11 of the Bankruptcy Code under the United States Code has recognized 6 types of bankruptcies. They are: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. Each chapter deals with a specific type of bankruptcy and extensively states all issues that are related to the particular type of bankruptcy classified under it. A brief explanation of the chapters can be found below:
- Chapter 7: This is the simplest form of bankruptcy under bankruptcy laws in the United States. This deals with simple liquidation for companies and individuals alike.
- Chapter 9: This deals with all bankruptcies that concern municipals. This is a bankruptcy that deals with municipal debts.
- Chapter 11: This deals mainly with corporations, but some cases of individual bankruptcies are also dealt with under this law. This is also called corporate bankruptcy, and businesses are allowed to function and do business by restructuring their loans that should be paid back to the creditors over time under the new conditions. This type of bankruptcy is focused more towards restructuring, consolidation, rehabilitation, and reorganization rather than a total shutdown of business.
- Chapter 12: Deals with bankruptcies of farmers and fishermen.
- Chapter 13: This type of bankruptcy deals with repayment plans for individuals who have regular incomes such as salaries or wages. Also called as the Wage Earner Bankruptcy, this type of bankruptcy allows the debtors to repay their loans under restructured loan plans that make repayment easier.
- Chapter 15: This concerns international debts and foreign debtors. This deals with bankruptcies that concern offshore debtors.
Bankruptcy laws in the United States have always been pro-debtor, and a debtor can take relief from his or her debt problems easily by consulting a good online bankruptcy attorney.
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