| A bankruptcy law suit aims at helping the | | | | debtor to keep his valuable assets such as |
| debt ridden citizen or an organization to be | | | | house under chapter 13. It allows the debtor |
| relieved from the pressures of the existing | | | | to propose a plan to pay off the creditors |
| debts. The goal is achieved by providing the | | | | over a period of three to five years. This |
| debtor a bankruptcy discharge, which releases | | | | provision comes in handy for the debtors who |
| him from the personal liability from certain | | | | cannot qualify for relief under the 'means |
| specific debts. It also prohibits the | | | | test' of chapter 7. If the repayment plan of |
| creditors form initiating any legal action to | | | | the debtor is confirmed by the court, he can |
| realize their debts. There are various types | | | | make the payment to his creditors through the |
| of bankruptcy laws that provide debt relief | | | | trustee of the court and save his asset. The |
| or discharge in form of debt liquidation to | | | | only thing is that unlike in chapter 7, the |
| the debtors. | | | | relief in the form of discharge of debts |
| | | | cannot be availed immediately. |
| Chapter 7 of Bankruptcy | | | | |
| | | | The debtor must fulfill the conditions of |
| Under chapter 7 of bankruptcy, the process of | | | | repayments. Under chapter 13, the debtor is |
| liquidation of debts is supervised by a | | | | protected from lawsuits, garnishments and |
| trustee. The trustee takes over the assets of | | | | other forms of creditor actions while the |
| the debtor's estate and reduces them into | | | | repayment plan is under implementation. The |
| cash. The debtor can seek exemption to retain | | | | discharge of debts is also somewhat broader |
| certain types of assets of his property and | | | | under chapter 13 than under chapter 7, in the |
| also the rights of the secured debtors. In | | | | sense, that more debts are cleared off by the |
| most of the cases under chapter 7 of | | | | repayment plan. |
| bankruptcy, the debtor has little or no | | | | |
| non-exempt property. Therefore, there may not | | | | Chapter 11 of Bankruptcy |
| be any liquidation of the debtor's assets. | | | | |
| | | | In case of organization and commercial |
| These cases are also called as 'no-asset | | | | enterprises the relief through the discharge |
| cases'. In such cases, the creditor with | | | | of debts is provided through an act called |
| unsecured claims can get back his loan only | | | | Reorganization. This is done under chapter |
| if he can file a proof before the bankruptcy | | | | 11. The assets of the debtor under the |
| court of the existence of assets, which can | | | | chapter 11 are not liquidated and he |
| be reduced to cash. Since there are generally | | | | continues to operate his business. In this |
| no such assets left with the debtor, he gets | | | | way, he can also make payments to his |
| away without paying back any unsecured loans. | | | | creditors. This reorganization of repayment |
| A debtor, if he is an individual, normally | | | | of debt is done through the approval of the |
| receives a discharge within a few months of | | | | court. A debtor, under chapter 11, has to |
| putting up his application for such relief. | | | | make his proposal for repayment within 120 |
| | | | days of filing the case for bankruptcy. |
| A Bankruptcy Abuse Prevention and Consumer | | | | |
| Protection Act of 2005 amended the Bankruptcy | | | | He has also to file a disclosure statement to |
| Code so that the individual debtor should | | | | his creditors containing a detail of his |
| pass a 'means test' to qualify for relief of | | | | proposal to clear off their loan. The court |
| discharge under the chapter 7. If the income | | | | ultimately approves or disapproves the plan |
| of the debtor is higher than a certain level, | | | | of reorganization. If the plan is approved |
| he may not be eligible for the relief. | | | | and confirmed, the debtor can reduce his loan |
| | | | liability by repaying a part of his |
| Chapter 13 of Bankruptcy | | | | obligations and seek discharge for the other |
| | | | debts. |
| There is yet another law, which enables the | | | | |