Bankruptcy Law – What You Need to Know

Whether you are trying to decide whether you should file for bankruptcy or are trying to find out what bankruptcy law is, you’ll want to make sure that you understand all the laws that are involved in filing a bankruptcy. Bankruptcy law is not a complicated matter, but it can be a little confusing if you’re not familiar with it.

Chapter 7

Those who qualify for Chapter 7 of the bankruptcy law are relieved of some of their debts. They may also retain some of their property. However, the debtor must be able to cooperate with the trustee.

A debtor must also be able to meet the means test. This test will help determine whether the debtor’s disposable income is low enough to qualify for Chapter 7 relief.

The “means test” involves a review of the debtor’s financial records. If the debtor’s income is below the state median, he or she may be eligible for Chapter 7.

This test is used to determine if the debtor can afford to make payments to creditors in the future. If the debtor’s disposable income is above the state median, he or she will not qualify for Chapter 7.

The means test also determines whether the debtor is able to file a chapter 13 plan. A chapter 13 plan usually lasts for three to five years.

Chapter 11

Often referred to as “reorganization” bankruptcy, chapter 11 of the bankruptcy law provides a means for businesses to restructure their finances and pay creditors over a period of time. In Chapter 11, the debtor in possession proposes a plan that is deemed to be approved by most creditors.

The plan must also include a plan to pay back nondischargeable debts. The plan may include an interest rate reduction, an extension of the repayment term, or a method of paying back creditors in a more expedient manner.

In addition to paying back creditors, a plan of reorganization allows the debtor in possession to continue operating their business while restructuring their debts. They may also continue to use assets from their estate in the course of their business.

Chapter 13

Basically, Chapter 13 is a way to reduce your balance by paying off unsecured debts over a period of three to five years. You can also keep your property in a Chapter 13 case.

There are three types of debts in a Chapter 13 bankruptcy. These include secured debts, unsecured debts, and priority claims.

Secured debts are those that require the creditor to hold an interest in the property. These debts include mortgages, car loans, and credit card debt. Secured debts also require you to pay the full balance. If you default on a secured debt, your creditor may ask the court for permission to repossess the property.

Unsecured debts are those that do not require collateral. These debts include credit card bills, medical bills, and other consumer debt. These debts are also commonly known as personal debts.

Liquidation

Currently, under federal bankruptcy law, a liquidating company is managed by a receiver appointed by a federal district judge. This receiver will then determine whether or not the director of the firm will stay in his or her position. The receivership process is not public and must be confidential.

Under the Dodd-Frank Act, the executive branch of the federal government has been empowered to use special resolution procedures for nonbank financial firms. These procedures are largely based on subjective criteria, such as the impact on financial stability in the United States. These procedures, however, raise significant constitutional questions.

The Dodd-Frank Act also created an Orderly Liquidation Authority (OLA). This OLA is designed to replace government bailouts of financially troubled firms. It assumes that resolution of large financial firms under ordinary bankruptcy law would threaten the stability of the financial markets.

Reorganization

Besides being the first firm to file for bankruptcy in the US, the Japanese firm that bears the name has a vested interest in the homegrown subprime credit crunch. Despite its best efforts, First Credit is not out of the woods, but it has yet to come up with the sexiest plan of all time. Having a reorganization plan on the books will allow the firm to focus its energies on re-building a winning portfolio of loans. Its new chief executive officer, Akinosho Koba, is a seasoned pro. The company has recently re-positioned its executive team to focus on the key areas of finance, risk management and legal matters. The bank has a track record of acquiescing to the wishes of its creditors.