Bankruptcy law: If a debtor is unable to pay the debts, he can get his debts discharged in parts or complete with the help of the Bankruptcy Law.
The ideology behind laws on bankruptcy is not to punish the debtor for his inefficiency in paying the debts; instead, to provide him an opportunity to start his life afresh.
The debtor’s assets can divide amongst the creditors or continue his business and pay them their debts.
Either the debtor or his creditors can initiate the proceedings.
The United States Bankruptcy Courts conduct proceedings and are dependent on the rules put forth by the Supreme Court.
Chapter 7 that involves the liquidation of assets is the most common.
A court-appointed trustee takes charge of the debtor’s assets, sells them, and distributes the proceeds amongst his creditors.
Debts like child support, alimony, and tax debts are not dischargeable.
In Chapter 11 and Chapter 13, the debtor has a chance to reorganize by providing a repayment plan and making the payments to his creditors over the next few years.
Chapter 11 is for businesses, while Chapter 13 is for individuals.