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Bankruptcy Law - Chapter 7 and Chapter 13

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Bankruptcy is an orderly procedure through which individuals or other legal entities that cannot pay debts to lenders can seek legal relief from some or all of the debts. In many jurisdictions, bankruptcy is legally imposed by a judge on the basis of certain circumstances arising from individual circumstances. In some countries, bankruptcy is the result of failure to comply with certain obligations under applicable laws. There are some common elements associated with bankruptcy, including:



A bankruptcy law generally provides that a debtor may declare himself/herself bankrupt provided that the seriousness of the situation and the alternatives available to the bankrupt have been properly analyzed. In some jurisdictions, the bankruptcy law provides for different types of bankruptcy, such as insolvency for businesses, partnerships and non-profit organizations. Insolvency is the absolute end of the financial activity, and no assets or other property can be attached to the property involved in such case.


Another type of bankruptcy provision is that of a constructive repayment agreement (hereinafter referred to as RCA). Under such an agreement, the creditor agrees to allow the debtor to pay a specified amount over a certain period of time as full repayment of the debt. The United States federal law allows for some states to implement their own forms of RCA, while others provide that the federal law is applicable in such states only. Usually, however, RCA agreements entail payment of the full amount to the creditor, with the interest being set by federal law.


Insolvency occurs when a person or entity is unable to pay his/her debts after a period of time has elapsed. For an individual, this usually means that the individual has totally lost control over the assets; in such cases, the trustee or liquidator appointed by the court becomes the sole owner of all assets. A qualified individual who has been declared bankrupt does not lose his rights to vote or retain property even after attaining freedom from debts.


Two types of Bankruptcy provisions are applicable in the United States: chapter discharge and chapter 13. Chapter discharge permits the discharge of debts in entirety if the debtor has fulfilled all obligations as laid down under the contract while chapter 13 involves the procedure of repaying the secured debt by selling it. As per the Bankruptcy Code, the trustee or liquidator appointed by the court must first file an application in the appropriate bankruptcy court, which is required to be filed within two months of declaring bankruptcy. The applicant then appears in the court to make the initial discharge order. However, this discharge does not apply to debts that were already discharged under chapter 13A or 13B.


With the exception of chapter 7, all other Bankruptcy provisions are applicable to all other Federal bankruptcy laws. Chapter 13A also allows for the recovery of debts from non-dominant borrowers in cases where the borrower had failed to discharge his or her obligation to such creditors. In addition to such recoverable debts, a bankrupt individual is allowed to recover damages from a third person who has lent money to him or her. However, in such circumstances, the person who has loaned money to the bankrupt is exempted from bankruptcy proceedings.

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