Bankruptcy law provides for a plan that allows a debtor who is unable to pay his creditors to resolve his debts through the division of his assets among his creditors. This also allows the interest of all creditors to be treated with equality. Certain bankruptcy laws allow a debtor to continue his business and use the revenue generated to pay off the debts. An additional aim of bankruptcy law is to allow certain debtors to liberate themselves of the financial obligations they have accumulated after the division of their assets. Bankruptcy law includes comprehensive access to civil litigation, credit, consumer law and commercial transactions.

Bankruptcy law prohibits some filers with higher income from using chapter 7. To file for chapter 7 current monthly incomes against median income is measured. If it is less than or equal to median income, chapter 7 can be filed. If it is more, the ‘means’ test must be passed to file for chapter 7 which is the requirement of the new bankruptcy law. The purpose of the ‘means’ test is to find out certain allowed expenses and debt payments are subtracted from the current monthly income. f the balance is below a certain amount chapter 7 can be filed.

Co-operative bankruptcy is filing of chapter 7 or chapter 11 by co-operations and partnerships in which the trustee appointed by the court sells the assets and distributes the proceeds to the creditors. The trustee’s commission, priority debts and debts to unsecured creditors are paid on a pro rata basis. In chapter 7, the debtor’s business operations cease once the case is filed. On the other hand in chapter 11 the business typically remains in operation and the debtor is given the same right as a trustee.

Personal bankruptcy is commenced by an individual filing chapter 7, 11, 12or 13. The debtor is allowed to exempt certain property (household furniture, jewellery, clothing, pensions, insurance policies and other assets) from liquidation by the trustee. Exemptions vary from State to State. The automatic stay takes effect immediately upon the filing, which prohibits collecting money, or taking property from the debtors. It usually remains in effect through out the case.

In chapter 7 bankruptcies, the debtor files a petition with the court with detailed financial information about his assets, debts and income. These papers are executed under penalty of perjury, the duration being three to four months. Chapter 11 bankruptcies are a reorganization procedure used by business partnership and co-operations. In this case, the debtor will act on his own as a trustee and is called a debtor ‘in possession.’