Bankruptcy is the legal procedure taken when an individual declares that he will be unable to pay his debts. Bankruptcy can be done by anyone. An individual or an organization can either declare bankruptcy or have his creditors file a bankruptcy case against him in the court.
Bankruptcy can mainly be of five types. In Chapter 7 type of bankruptcy, the debtor gives up his non-exempt assets and walks free of all his debts. This is also known as liquidation, and is the most common kind of bankruptcy. In Chapter 11, the individual or the organization is allowed to restructure debt, and find ways of repayment. Chapter 9 is same as chapter11 and allows municipalities to find ways of repayment. The chapter 13 type of bankruptcy allows debtors to repay in full to their creditors and to some in parts before they start reorganizing their debt load.
Chapter 12 type of bankruptcy is one of the different variants of bankruptcy. This bankruptcy law has been provided to save family, farmers and fishermen from the clutches of bankruptcy abuse. Chapter 12 bankruptcy law is based upon the chapter 13 type of bankruptcy, but has a higher debt ceiling. A debtor is allowed a period of three to five years to repay his debts.
- Chapter 12 bankruptcy law is more stream lined and les complicated than 11 and 13.
- Chapter 12 law is les expensive and more debtors friendly.
- Chapter 13 has been designed for debtors with regular income and smaller debts. This does not suit farmers or fishermen who do not have a regular income.
- The time limit for debt reorganization is more than the other two chapters.
- Credit limit too is higher in case of chapter 12 law of bankruptcy.
The working of this type of bankruptcy begins with the debtor filing for bankruptcy in the court of his municipality or whose jurisdiction he falls under. Besides filing for bankruptcy, the debtor also needs to submit the following documents
- His assets and liabilities.
- Last pay slip and expenditures that he incurs.
- A list of his debts.
- Other financial statements.
The court charges a fee for filing the paper work. The debtor has the option to pay this fee in installments within 120 days of filing the petition. The tenure may get extended to 180 days if proper causes are shown. Failure to submit the fees will cause the dismissal of the case.
Filling the case stops lenders from taking any collection action until further notice. Finally, the court issues a notice to the lenders as well as the debtor that he has been permitted to reorganize his debts and to pay his debts within a period of three to four years. At the end of the tenure the debtor is furnished with a completion certificate.