Bankruptcy is a procedure that you can resort to if you feel powerless in relation to paying debts and being persecuted by collectors. If it is impossible to pay the loan amount with interest, a person is assigned the status of bankruptcy.

What are the features of bankruptcy in the United States from a legislative point of view? Keep reading this article to find out the legal component of this status.

Laws Allowing For Bankruptcy

There are four chapters in American law that will allow one to file for bankruptcy. Two chapters are intended for individuals, while the other two are needed to declare the company bankrupt.

• Chapter 7

Chapter 7 is probably the most common law describing the bankruptcy of individuals. However, in order to fully understand the law, it is necessary to familiarize yourself with a number of its special features. For example, debts can be withdrawn only a few months after the application is submitted. Moreover, not all debts are subject to this law. Citizens who file for bankruptcy need to prove that they do not have enough financial resources or property to repay the debt. You may also encounter the name liquidation bankruptcy used to describe this chapter.

• Chapter 13

A reorganization bankruptcy is a chapter for those who do not meet the requirements of the previous chapter. You can agree to pay part of the previously borrowed amount for a period of up to 5 years, after which the amount remaining unpaid will be written off.

• Chapter 11

A company whose managers have encountered financial difficulties may also be declared bankrupt in accordance with Chapter 11. In this case, the owner can continue to run the company and make important business decisions, but they are assigned the status of a debtor in possession. The shareholders of the company do not have to worry about their assets since this chapter does not involve the collection of personal property of owners and shareholders.

• Chapter 12

This chapter includes a rather rare case of bankruptcy that is described specifically for family farmers. In general, bankrupt entrepreneurs also have to pay off the debt for several years before the remaining debts are forgiven.

Bankruptcy is not the only way

It should be understood that bankruptcy is not the only way to solve the problem that you can resort to in case of an inability to pay debts to creditors. Even if you understand that you cannot repay the entire amount, the lender can meet you halfway and consider the debt paid when paying only part of the amount.

This option is possible since it is better for the bank to agree to a small amount than to lose all the money that the borrower had to pay.