Thursday, January 24, 2013, AM | 3 Comments
Bankruptcy is the legal term or status which is applied to individuals who are not in a position to pay back the debt that they owe to others (which may be individuals or firms). As per the laws applicable in various countries around the world, bankruptcy can only be announced by the court of law of that particular country.
Here are some of the various kinds of bankruptcy prevalent in the court of law:
This is one of the most common types of bankruptcy and it is quite easy for a layman to understand the terms and conditions mentioned under this Chapter. This bankruptcy can be applied to an individual, or an organisation or a group of people once they have filed the bankruptcy papers in the court of law citing their inefficiency for paying the debt owed to others. The person/s that files for such bankruptcy needs to go through rigorous tests by a credit counsellor before they can approach the court of law for a hearing. Once they are declared as bankrupt, the court provides them with a trustee who helps in selling off their assets for paying off their debt to the maximum possible extent. The remaining debt signed off as bad debt and further on, the person filing the case is declared as bankrupt.
Chapter 9 applies to municipalities, public agencies or subdivisions of public agencies which are more dedicated to public utilities. This kind of bankruptcy is very complicated and needs a lot of attention.
This bankruptcy applies to situations wherein a business or an organisations falls into the debt trap and is unable to pay off the debt owed to outsiders. The possible outcome for this kind of bankruptcy is that either the organisation is merged with some other organisation (after this new organisation agrees to pay off the debt) or is bought by another organisation.
This bankruptcy is exclusively coined for fishermen & farmers or to people who are primarily from the working class. Under the rules of this bankruptcy, the people filing for bankruptcy are not asked to pay off the debt by selling off their assets. Instead, the debt is paid off from the future earnings that the farmer or the fisherman makes.
This kind of bankruptcy is quite similar to the one described in Chapter 12. However, under Chapter 12, the individual declared bankrupt is made to pay the debt from his or her future earnings & is not asked to sell their assets for paying off the debt related to them. The allotment is made out of their earnings which are around 10% of their total income and is used to write off the debt month by month.
To conclude, it can be stated that there are various kinds of debts which are in use all over the world Depending on the kind of people filing for bankruptcy, the Chapter also tends to differ, making the concept equally difficult to understand. Also, it is important to note that a bankruptcy should not be confused with insolvency as they both have different meanings and are dealt with differently.
Keith Tully is the Managing Director and author of this post. He has been involved in business insolvency with a team of Real Business Restructuring Experts who strive to alleviate the stress and financial troubles associated with a business.
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