Personal Bankruptcy is covered under two Chapters of the Bankruptcy Code namely Chapter 7 on liquidation and Chapter 13 that allows individuals to undergo financial reorganization.
Under Chapter 7 of the Bankruptcy code is known as straight bankruptcy. Herein, the assets of an individual are liquidated to pay his debs. This chapter does not envisage a repayment plan and the debtor has to forego some of his assets. Usually a proceeding under this section is initiated when the individual is in debt and his income is not above the median income that is prescribed. Under Chapter 7, the non-exempt assets of the debtor are utilized to pay the creditors. After such satisfaction of the debts, the debtor is usually discharged from the remaining debts, subject to certain exemptions. The liquidation of the assets take place under the supervision of a Court appointed trustee, who thereafter makes the payment to the creditors.
Chapter 13 bankruptcy proceeding is one by which the debtor in consultation with the Bankruptcy Court formulates a repayment plan panning over a few years, so that his assets are not liquidated and he receives an opportunity to pay his debts . Usually the time period within which the debtor has to repay his debt is between three and five years. After the approval of the plan by the Court, regular payment need to be made to the Court and thereafter the Court pays the creditors. Chapter 13 is usually filed by home owners who are trying to save their homes from foreclosure. When the debt is re paid satisfactorily, the Court will issue a discharge.
Chapter 11 Bankruptcy is very rarely used by individuals and is resorted to most often by large corporation. Chapter 12 is similar to Chapter 13 but specifically addresses the needs of family farmers and family fishermen.
Therefore, almost all individual bankruptcy petitions are made under Chapter 7 and Chapter 13.
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