What is Bankruptcy and its types?

Bankruptcy is a legal proceeding in which a person or a business not in a condition to repay their outstanding debts.  Most commonly in the process of bankruptcy, petition is filed by debtor or on the behalf of creditors, which is very rare. In this petition some of the debtor’s assets are used to repay some portion of outstanding debt. If you want to declare your company bankrupt then you must consult to a Bankruptcy Attorney.

In United States, filing of Bankruptcy comes under various chapters of Bankruptcy Code:

1)      Liquidation of Assets come under Chapter 7

2)      Company or individual reorganization comes     under Chapter 11
  3)      Debt repayment with lower debt covenants or     repayment plans comes under Chapter 13

This process of Bankruptcy filing differs among various states, and it depends on how easily a person or company can complete the process, which leads to higher and lower filing bills.

Chapter 7 Bankruptcy Code

Chapter 7 is one of the most common types of Bankruptcy code, in which an organization or an individual can file petition. In United States, it is also called Liquidation Bankruptcy and is very common in United States. In this petition court appoints a trustee to handle your case. He takes your assets, evaluates, sell them and distribute the money to the creditors who file proper claims. After all this you still have property enough to start a new fresh. Bankruptcy involves the proof of your financial statements that the debtor puts on his bankruptcy statements. One should have to verify your information quickly and efficiently trustee.

Chapter 11 Bankruptcy Code

Chapter 11 Bankruptcy is another type of Bankruptcy Code, which involves the reorganization of one’s business affairs, debts and assets. This form of Bankruptcy is commonly filed by big organizations which will need some time to restructure their debts. This form of bankruptcy helps organizations to get a fresh start. This is a step that organization takes after a detailed analysis and systematic consideration of all other alternatives as this is the most expensive among all options. Time period to complete Chapter 11 Bankruptcy Case may be took either few months or maximum two years. After the completion of Chapter 11 Bankruptcy, the debtor is not allowed to arrange any loan that will commence.

Chapter 13 Bankruptcy Code

In Chapter 13 Bankruptcy, instead of reorganization of business in Chapter 11, it involves the reorganization of bankruptcy. In this petition, debtors can set up a repayment plan that uses their income to gradually eliminate their debts. For this petition a person’s income should exceeds than the limit of Chapter 7. Debtor proposes a plan of installments to repay the loan in three to five years.