Thinking of Declaring Bankruptcy? Understand Who Can File and Reasons People Do This!
A person or a company who is unable to pay debts to its creditors may declare bankruptcy. Different countries have different bankruptcy laws. In United States, the federal law governs bankruptcy procedures. Bankruptcy laws have its origin in England hundreds of years ago. In United States the history of bankruptcy goes way back in 1800. The American congress during 1800 passed first bankruptcy law, which substantially mirrored English rules of giving debt relief. Since then there have been many twists and turns in the law and great deal has changed. Major changes in bankruptcy laws took place during 1841, 1867, 1978, and in 2005 amendments. While there were several changes in the bankruptcy law from time to time, the basic aim has never faltered. These amendments were made with the intention of helping hardworking people and businesses in eliminating or reorganizing debt.
Who Can File for a Bankruptcy?
A bankruptcy case begins normally when a debtor files a petition in bankruptcy court. An individual or a corporation or any other entity can file a petition. The federal court under the enacted rules of United States bankruptcy code handles such petition. Bankruptcies are of various types. It is referred by chapter in the enacted U S bankruptcy code.
- Individuals can file for bankruptcy under chapter 7 and chapter 13
- Towns, municipalities, villages, district school, etc can file under chapter 9 for reorganization.
- Businesses or corporation can file under chapter 11 mainly and in some cases under chapter 7.
- Chapter 12 covers relief for farmers and fishermen.
- In chapter 15 deals with bankruptcy procedure for foreign companies having US debt.
Millions of people file bankruptcy petition in US every year as compared to businesses. Here are some of the reasons:
- Nearly 60 percent of individuals file for bankruptcy due to medical expenses. The financial burden of medical expenses is very huge. If a person does not have medical insurance he can face such financial catastrophe.
- Many companies in order to meet their expenses cut down salaries of their employees. This can result in filing of bankruptcy in many cases.
- People face credit card debts not only due to spending irresponsibly but factors such as job loss, illnesses, and accidents, unexpected reduction of income can lead to bankruptcy if the person does not plan his finance well.
- Divorce is not an easy procedure. It can lead to loss in income for the family as well as loss of property and assets.
- Unexpected expenses always hover over. Illness, environmental catastrophe such as flood, storm, hurricane, car breakage, damage to the house, can drain away lots of savings. This may become a reason for bankruptcy.
There are many more reasons that can lead to individual bankruptcies; overspending, foreclosure of home loans, loan for students, all can lead to long term financial problem which ultimately lead to filing of bankruptcy in many cases.