Written by Jane Birnbaum
Posted by Stefanie Marty
Bankruptcy is a procedure allowing debtors, both households and businesses, to eliminate some bills and repay others over time.
While bankruptcy is generally seen today as a protective measure for debtors, its ancient roots are punitive, a remedy on behalf of creditors. Early United States bankruptcy laws did not provide for a discharge of debts by debtors, only a liquidation of their assets. The roots of modern American bankruptcy are found in Congress’ Bankruptcy Act of 1898.
The Department of Justice’s United States Trustee Program oversees administration of bankruptcy law. There are five chapters of United States bankruptcy law, which apply to different situations:
Chapter 7: Used by consumers and businesses, it eliminates many debts such as credit card and medical bills not secured by collateral, in exchange for the liquidation of assets not protected by federal or state exemption laws.
Chapter 13: A debt reorganization plan chiefly used by individuals who want to keep possession of assets such as homes and cars by becoming current on delinquent loans and repaying unsecured debts according to their means.
I didn't know what chapter 7 or chapter 13 means before preparing the exam. Now it make more sense.
ReplyDeleteCommented by Minjune Kim
I would much rather have a Chapter 13 because I would still be able to keep my assets.
ReplyDeletePosted by Michael Rivezzo
I suppose it depends on how much debt the person is in. Say for instance the person filing for bankruptcy has $1 million in debt but whose assets are worth 500,000. There is absolutely no way that person is going to be able to file for Chapter 13, keep their assets, and pay off the entire debt without at least selling all of their assets anyway. Of course this is an extreme example, but I feel that there has to be a certain percentage of debt in relation to assets where it is more logical to file for chapter 7 over chapter 13.
ReplyDelete-- Lisa Matthys