Bankruptcy law allows a business or individual debtor to resolve debts through the division of assets among creditors. This supervised division allows the interests of all creditors to be treated with some measure of equality.
Certain bankruptcy proceedings allow companies to stay in business and use revenue generated to resolve debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves of the financial obligations they have accumulated after their assets are distributed, even if their debts have not been paid in full or are not paid via bankruptcy.
Bankruptcy law is federal statutory law, and its proceedings are supervised and litigated in federal bankruptcy courts.
Laws concerning the debtor–creditor relationship regulate the way creditors are allowed to resolve a consumer’s debt. State and federal laws, such as the Fair Debt Collection Practices Act, govern this area.
GetLegal’s Bankruptcy and Debt Law Center provides general information about debt and consumer and business bankruptcy.
Chapter 7 bankruptcy, also known as liquidation, is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors.
Chapter 13 bankruptcy, also known as the wage earner’s plan, allows individuals to repay their debts. Depending on the amount of debt, the plan lasts from three to five years.
Chapter 11 bankruptcy, also known as reorganization, normally is used by businesses with secured debts of less than $1 million. Organizations that file for Chapter 11 normally stay in business while reorganizing and taking care of debt obligations.
Get answers to some common questions about bankruptcy.
Debtor–creditor law covers instances in which a debtor owes a creditor money. The rules vary depending on the type of creditor.
The Fair Debt Collection Practices Act provides debtors with a way to challenge payoff demands and determine the validity and accuracy of asserted debts. Congress enacted the act to stop abusive, deceptive and unfair debt-collection practices.