The concept of bankruptcy has been a facet of banking since the dawn of commerce, and the origins of the word stem from the Latin roots of the word bancus which means “bench” or “table” and ruptus which means “broken.”
The first bankers set up shop in marketplaces and used tables or benches to conduct business and to set up bills of exchange. When the banker failed, his table was broken, which signified that he could no longer conduct his business.
Other people attribute the phrase to old French or Italian terms for insolvency, but in any case bankruptcy has evolved from a social stigma to one of the most important protective measures for consumers today.
In the modern era, bankruptcy has become an island of stability in a sea of financial chaos. Bankruptcy today takes into account the immensely complicated and confusing nature of financial interactions and can help protect your rights, your income, your property, and most importantly — your self–respect.
Types of Bankruptcy
Bankruptcy can be an invaluable tool for people thrown into financial ruin by unavoidable circumstances like health issues or a job loss. There are three types of bankruptcy. They include:
- Chapter 7 Bankruptcy: Liquidation under the Bankruptcy Code
Chapter 7 of the United States Bankruptcy Code is the Bankruptcy Code’s “liquidation” chapter. It is oftentimes referred to it as a “straight bankruptcy.” Chapter 7 is primarily used by individuals who wish to free themselves of debt simply and inexpensively, however it may also be used by businesses that wish to liquidate and terminate their business.Upon the filing of a chapter 7 petition, an impartial case trustee is appointed by the United States trustee to administer the case and liquidate the debtor’s nonexempt assets.
- Chapter 13 Bankruptcy: Individual Debt Adjustment
Chapter 13 of the United States Bankruptcy Code is commonly referred to as a “wage earner” chapter, though it is available to individuals with regular income from any source, not just wages. If the amount of cases so warrants, the United States trustee may appoint a standing trustee to serve in all chapter 13 cases in a district.Once the court confirms the plan, it is the duty of the debtor to make the plan succeed. The debtor must make regular payments to the trustee, which will require adjustment to living on a fixed budget for a prolonged period.
- Chapter 11 Bankruptcy: Reorganization under the Bankruptcy Code
A case filed under chapter 11 of the United States Bankruptcy Code is commonly referred to as a “reorganization” bankruptcy. While persons are not precluded from using chapter 11, it is usually used to reorganize a business, which may be a corporation, sole proprietorship, or partnership.Though the appointment of a case trustee is a rarity in a chapter 11, a party in interest or the United States trustee can ask for the appointment of a case trustee or examiner at any time prior to confirmation in a chapter 11 case.
In chapter 11, a liquidating plan is permitted. This type of plan often allows the debtor in possession to liquidate the business under more economically advantageous conditions than chapter 7 liquidation.
Affirmation of a plan discharges the debtor from any debt that arose prior to the date of confirmation. Once the plan is confirmed, the debtor is obligated to make planned payments and is bound by the provisions of the plan or reorganization.
Bankruptcy Lawyer
If you are considering filing for bankruptcy it is recommended that you consult with an experienced bankruptcy lawyer that is familiar with your state laws.
