Introduction:

Bankruptcy is legal status in which a person or entity is not able to pay off the debts owed to the creditors. The court imposes bankruptcy, and the debtor initiates the process in almost all cases. It is legally claiming that you are not able to pay back your debt and thereby it is legal refusal to pay back debts and seeking refuge in the eyes of the law. As far as the law is concerned there a lot of chapters that deal with the process of bankruptcy. So depending on the chapter that governs your cases, your debts are treated. To make things even more understandable, let us discuss in detail about Chapter 7 and Chapter 11 of Bankruptcy.

Chapter 7: Liquidation Bankruptcy

When the financial position of an individual or entity is sick, and there are no other possible options apart from liquidation that when Chapter 7 is executed. The Chapter 7 Bankruptcy is also known as Liquidation Bankruptcy. Any entity going through this form of bankruptcy must sell off all the assets to pay the creditors. However, if some of the assets are specifically exempt from this list, the entity can still have that asset under its ownership or simply sell and own the money. In simple terms, creditors cannot claim payment from such assets. According to chapter 7, the loan is supposed to be repaid in the process of ‘absolute priority,’ this means that the creditor collects the debts in the order in which he loaned out.

Chapter 11: Rehabilitation bankruptcy

As stated earlier there a lot of other option apart liquidation, when the court declares insolvency. One such strategy is what chapter 11 talks about. Chapter 11 bankruptcy details with Rehabilitation bankruptcy. In rehabilitation bankruptcy, the entity doesn’t liquidate instead it merges with a healthy organization and survives. All entities try their best to get relief under Chapter-11 because the organization still lives even after a bankruptcy notice has been served. Here the going-concern of the organization is not affected.

A Quick Comparison

• Chapter 7 gives relief from the burden of the loan and stops the creditors from contacting you any further, but you are no more a going concern. But in Chapter 11 relief you are only altering the terms of the contract with the creditor. However, the debtor protects the perpetual existence of the organization in chapter 11.
• The main difference between chapter-7 and chapter-11 is that in chapter-7 the assets are sold, and the possible payment is met by the debtor. In chapter 11 assets need not have to be necessarily sold. You are simply altering the terms of contract with your creditor, once the merger takes place after the negotiation.

A lawyer will present analysis between the chapters that deal with bankruptcy and will help you pick the right option. It is always better to look for multiple expert opinions before you drop down to a conclusion.

Take A Look At The Fee Waiver Criteria And The Key Points Revealed In Statistical Analysis:

Bankruptcy has become a common phenomenon globally. Statistical data show results that are disheartening. There are three major chapters under which bankruptcy can work, which are Chapter 7, 11 and 13. The process differs under every chapter. Let’s quickly see how these chapters differ so that we can have a better understanding of the bankruptcy statistics and how fee waiver relief is given.

Chapters: 7 vs. 11 vs. 13

Though there are a lot of minor difference between the three chapters, there is only one major distinction, which is the relief that the debtor gets under each chapter.

• Under Chapter 7 the debtor is relieved of all his contracts with the creditor once he pays the amount earned out of realizing the assets and then entity liquidates. Here the creditor gets the amount back, in the order in which he lent.
• Under Chapter 11 the debtor is not relieved of his debts. Instead, the sick entity merges with a healthy organization and functions, without going through liquidation. The debtor and creditor negotiate the terms of the contract and settle the loans accordingly.
• Under Chapter 13 there is neither foreclosure of properties nor liquidation. The debtor is relieved from the clutches of his debt trap by providing him the opportunity to earn and pay off his debts. He can pay back his debts over a period of 3 years up to a maximum of 5 years unless the court states otherwise.
• The Chapters 7,11 and 13 are also known as Liquidation Bankruptcy, Rehabilitation Bankruptcy and Wage earner’s plan respectively, based on the nature of relief provided to the debtor.

Bankruptcy: A statistical analysis

Every year a lot of bankruptcy cases are being filed, seeking relief from the shackles of debt. Here are few common points that all statistical data about bankruptcy say:

• Bankruptcy cases were recorded the highest in the year 2005, which roughly estimates to more than 2 million.
• The notable point is that most bankruptcy cases today are filed by consumers and not by business people.
• After a thorough research, the most basic belief behind bankruptcy was broken. Bankruptcy, as most people believe, is not because of conspicuous consumption, it is because low-income people cannot bear the burden of the increasing cost of living. They become incapacitated to meet the major bills. The cost keep escalating but their income remains static.

When is the court fee waived off?

• As we are very well know, there are 3 chapters under which bankruptcy can work. When you file a petition requesting bankruptcy relief in the court, you are liable to pay a certain amount of fee to the court.
• The court fee can be waived if you are seeking relief under Chapter 7. Looking at the case from different perspectives, it also logically right to waive fee only when Chapter 7 is established because here the debtor loses almost everything so asking him to pay a fee would be unfair. But it is not the case in Chapter 11 or 13.
• However, the waiver happens at the discretion of the judging panel. If the victim is at or below the poverty line irrespective of the Chapter under which he seeks relief, the fee can be waived.