A Comprehensive Guide To Bankruptcy Law
Bankruptcy is a procedure of the federal court by the help of which the consumers and businesses can get rid of their debts by repaying them according to a plan. There are different types of bankruptcy plans and different laws to repay the debts to creditors. These are called bankruptcy federal statuary laws.
According to some laws of bankruptcy the assets of debtors are distributed among the creditors to repay the debt. This distribution or division is done under supervision so that the creditors are treated equally. The bankruptcy laws are designed to help the debtors to meet their financial obligations and free themselves of the debts by repaying them and have a fresh start in business after paying their debts.
Some laws however let the debtors stay in business and in such a case the debts are paid through the revenue generated by the business. When the assets of debtors are divided or distributed then according to the laws they are discharged of the bankruptcy even if their debts are not paid in full. This situation holds for certain debtors and not all the debtors.
The debtor may file liquidation bankruptcy or reorganization bankruptcy so the bankruptcy plan is made according to the filed bankruptcy. Under liquidation bankruptcy (chapter 7) all the non-exempt assets of the debtor are divided among the creditors and the debtor becomes discharged of bankruptcy in a very short time usually in six months. This procedure is supervised by the court in which a trustee collects assets, converts them into cash and pays it to the creditors.
If reorganization bankruptcy (chapter 13) is filed then a longer plan of three to five years is formed. In such a plan small portion of the total unsecured debt is paid in addition to the regular payments to the court and by the end of this plan the debtor is free of al the debts and is discharged of bankruptcy.
The new bankruptcy law passed in 2005 has a condition according to which before filing a petition of bankruptcy current monthly income of the debtor has to be measured and petition has to be filed accordingly. The current income is measured against the median income of a similar household size. If the current income of the debtor is less than or equal to the median income then they can file for liquidation bankruptcy but if it is greater then the median income then a test known as mean test has to be passed by the debtor.
Mean test is conducted to figure out the disposable income to check if the disposable income is enough to make the payments for the reorganization bankruptcy plan. This disposable income is measured after subtracting certain allowed expenses and the required debt payments.
Moreover, the new laws have made it necessary to get credit counseling with an agency before filing a bankruptcy petition in order to know that whether you really need to file for bankruptcy or you can repay your debts with an informal repayment plan. If the agency proposes a repayment plan then it has to be submitted to the court before filing for bankruptcy to confirm that you have participated in the credit counseling. To attend another counseling to learn about personal financial management is also necessary to end your bankruptcy case.