Bankruptcy and the Legal Environment of Business - Essay Example

The two categories engross the five bankruptcy types: chapter7-Liquidation, chapter 13-individual debt adjustment, chapter 11-reorganization, chapter 12-Family farmer, and chapter 9- municipality (Distenfield, 2005, p. 47). All five chapters are distinct as each defines each obligation of debtors and is determined by bankruptcy courts. Therefore, chapter 7 is legislated specifically for people who cannot afford or who are unable to pay their debt. Accordingly, one chief reason people choose to file chapter 7 is that if one qualifies, he or she can then afford the monthly reimbursement for the items they wish to keep. This is unlike chapter 13 because those who file chapter 7 debtors are often ready to credit score more quickly. After all, they aim to complete bankruptcy suit swiftly (Gambrell & Associates, n.d.).

As with Chapter 13 on the other hand, the debtor is demanded to reimburse all or part of his/her debts in terms of reduction of upcoming income within a stipulated period of 3-5 years as per the chapter 13 arrangement. Much of the debt that is not reimbursed as set out in the agreement or a plan of reorganization will have to be wiped out or discharged. This is unlike in chapter 7 where bankruptcy does not discharge much of the mortgage, for if the debtor desires to keep an item product e.g. an apartment or a car as security for a loan, he is required to prolong these payments. However, under chapter 13, nearly all long-term debts and mortgages have to be paid in their usual monthly reimbursement either during or outside the plan, apart from for the payments that were due ahead of the case filing (Gambrell & Associates, n.d.).

Chapter 9 deals with municipalities and a municipality are required to demonstrate its eligibility to be a debtor under section 109 (c) and such eligibility to file for chapter 9 is often contested by the creditor (s). Such is different from chapter 11 whereby eligibility is never challenged as a party is supposed to be eligible for filing save for insurance companies, stockbrokers, insured banks, and commodity brokers. Another difference with chapter 9 is that debtors are allowed to lease or sell a property without the involvement of the bankruptcy court’s approval while none of the actions is acceptable without the bankruptcy court’s approval (Distenfield, 2005, p. 47).

Chapter 11 is a type of bankruptcy used by large corporations when reorganizing their debts in a way that they can continue to be in operation. Unlike chapter 13, where large corporations, limited liabilities, and partnership companies are unable to reorganize and can cease operation in case chapter 7 is filed, chapter 11 comes to their rescue. Consequently, due to its complication, chapter 11 has very few cases unlike other chapters, and is salvaged for companies that cannot obtain relief under chapters 13 or 7 (Gambrell & Associates, n.d.).

Chapter 12 envisages bankruptcy that is used by farmers and fishermen unlike big organizations in chapter 13. The benefit of Chapter 12 is that the reorganization arrangement will permit seasonal payments, particularly till when a farmer earns his returns. Corporations, partnerships, or limited liability companies along with persons are eligible for reprieve under chapter 12 when stipulated as either family fishermen or family farmers (Gambrell & Associates, n.d.). Amid the several differences in terms of applicability and discharge eligibility, one similarity is that each debtor ought to be counseled by an approved credit counsel within the stipulated 180 days before filing any bankruptcy. This is a universal requirement for all chapters within the Bankruptcy code. Consequently, in case the debt administration plan is developed during the mandatory credit counseling, such a plan must be filed with the bankruptcy court.