Bankruptcy refers to a federal court process in which repayment arrangements are made to allow an insolvent debtor to clear the outstanding debts. Bankruptcy is often declared when a company or an individual is so deep into debt that starting afresh is the only reasonable option. This paper compares and contrasts the five types of bankruptcy proceedings.
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Different Types of Bankruptcy
The first type of bankruptcy is referred to as liquidation. It can be accessed by individuals, matrimonial couples or business partners. The group or individual seeking to apply for this bankruptcy proceeding must first attend an interview conducted by an agent of a credit counseling agency.
The agent is obliged to appear in court during the bankruptcy proceedings. Unlike the other types of bankruptcy, the applicant is delegated a trustee who is expected to oversee the selection of assets that are to be excluded from the bankruptcy. Apart from the assets selected for exemption, the remaining assets are to be sold, and the proceeds used to settle the outstanding debts.
The second type of bankruptcy involves municipalities that want to adjust their debts. It is contained in chapter nine of the United States bankruptcy code. This type of bankruptcy is different from the rest because it only is suited for municipalities. Municipalities in this respect include towns, cities, school districts, and counties.
The third type of bankruptcy applies to business corporations and is referred to as reorganization. Unlike in liquidation where a trustee is allocated, this type of bankruptcy allows the corporation to design its own restoration plans.
These plans for reformation can comprise measures that try to restore the productivity of the company, consolidate debt and begin repayment. Unlike liquidation, the reorganization type of bankruptcy does not seek to purge all arrears immediately. On the contrary, a suitable payment plan is formulated to enable the business to keep all or most of its essential assets while paying its debts. The strategy for reorganization is ultimately ratified or dismissed by the court.
The fourth type of bankruptcy involves fishermen and family farmers who have access to regular sources of income. Unlike liquidation, the applicant does not lose any of his assets.
The applicant is instead allowed to repay his debts out of his prospective earnings. A debt repayment plan is designed in a format that the applicant can observe. This bankruptcy is similar to the fifth type of bankruptcy since the debtor is allowed to design a plan for repayment in both cases. It is similar to liquidation with respect to the concept that a trustee is allocated to oversee the repayment.
The fifth type of bankruptcy covers individuals who are not necessarily fishermen or farmers, but who must have regular sources of income. It resembles the previous type of bankruptcy since both types deal with people who have regular sources of income. However, unlike the previous, this type of bankruptcy is not restricted to specific professions. Like in liquidation, a credit counselor must be consulted.
However, in this case, the work of the counselor is to establish the applicant’s ability to restructure his own debt payment plan. The fifth type of bankruptcy compares with the fourth and third since they all allow the applicants to retain their assets. Unlike liquidation, the insolvents do not acquire instantaneous absolution from debts.
There are five different types of bankruptcy outlined in the United States bankruptcy code. These types of bankruptcy apply to different individuals and companies and vary according to income, profession and level of debt. It is advisable that each individual or organization examines the different bankruptcy types before settling on one.