People who are no longer in a position to pay their creditors are considered bankrupt. Bankruptcy laws in the U.S. help these people to liquidate their assets and repay their debts in an orderly manner.
Cases involving bankruptcy laws under Title 11 are heard, not in state courts, but in special courts called bankruptcy courts, every state having at least one such court. While the U.S. bankruptcy laws are federal in nature, each state can specify which property is exempt under the law. The person filing for bankruptcy can select either the federal or state exemptions.
Chapters 7, 11 and 13 are the most important under bankruptcy laws. Chapters 7 and 11 are mostly for personal bankruptcy. Although businesses can also file for bankruptcy under Chapter 7, they get the opportunity to reorganize and use business revenue to settle debts only under Chapter 11.
Under chapter 11, a bankruptcy case has to be filed in the state where the debtor resides. The filing may be a voluntary one filed by the debtor himself or an involuntary one filed by the creditors. Generally, the debtor has to submit the court a statement of his assets and liabilities, income and expenditure and other financial details.
Chapter 13 allows the bankrupt to retain all their property. However, they are required to repay either the entire debt or a portion of the debt within a period of 3 to 5 years.
Although bankruptcy laws allow people to file for bankruptcy without the help of a lawyer, it is advisable to hire a lawyer. This is because the forms are quite complicated and failure to fill any may lead to severe problems.
With the easy availability of credit, an increasing number of people are suffering huge losses, both personal and business, and filing for bankruptcy. Bankruptcy laws help the debtor to stay in business and at the same time free him from debt even if he cannot pay in full, by allowing him to draw out a plan to proportionately pay his creditors.