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Home > Law & Legal Topics > Bankruptcy Law

» Bankruptcy Law:
Bankruptcy law is the branch of law for a debtor whose property is subject to administration under the bankruptcy laws for the benefit of his creditors.

There are two types of bankruptcy proceedings, namely, liquidations and payout plans. Chapter 7 bankruptcy is the liquidation chapter in which the debtor gives up all non-exempt assets, the Trustee in Bankruptcy sells these assets, and the proceeds are distributed pro-rata to creditors.

The benefit of a Chapter 7 liquidation to a consumer debtor is that the debtor receives a discharge of all preexisting debts. In this way liquidation provides a fair distribution of the debtor's assets and it provides a "fresh start" for the debtor.

Chapter 13 for consumers and Chapter 11 for businesses (and some consumers with very large debts) are payout plans. These plans allow the debtor to propose to keep all assets in exchange for promising to pay off debts over a period of time out of future income. This can allow the debtor to avoid fire-sale prices in liquidating property and provide higher returns for creditors.

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