Bankruptcy in the United States: Types, Applications, and Differences
1. Introduction
Bankruptcy is a state in which a business unit is declared financially incapable of taking care of its activities. This paper focuses on three types of bankruptcies, their applications, and differences using the United States as a point of reference. The three types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13.
2. Types of bankruptcy
2.1 Chapter 7
This type of bankruptcy is also known as liquidation bankruptcy. In this type, the business is required to sell all its assets in order to repay the creditors. The assets are then used to pay off the debts from the creditors. After the payment has been made, the business ceases to exist.
2. 2 Chapter 11
This type of bankruptcy is also known as reorganization bankruptcy. In this type, the business is allowed to continue with its operations while under bankruptcy protection. The business is given a chance to repay its debts over time. This type of bankruptcy is mostly used by large businesses.
2. 3 Chapter 13
This type of bankruptcy is also known as personal bankruptcy. In this type, individuals are allowed to reorganize their debts and repay them over a period of time. This type of bankruptcy is mostly used by individuals who have a regular source of income.
3. Application of type of bankruptcy
3.1 Chapter 7
Chapter 7 bankruptcy is mostly used by small businesses because they do not have the resources to reorganize their debts under Chapter 11 or 13. Also, businesses that are not doing well financially use this type of bankruptcy so that they can start afresh without their debts.
3.2 Chapter 11
Chapter 11 bankruptcy is mostly used by large businesses because they have the resources to reorganize their debts and continue with their operations. This type of bankruptcy protects the business from its creditors while it repays its debts over time.
3.3 Chapter 13
Chapter 13 bankruptcy is mostly used by individuals who have a regular source of income because they are required to repay their debts over time. This type of bankruptcy helps individuals keep their property while they repay their debts slowly over time.
4. Conclusion
Bankruptcy is a state in which a business unit is declared financially incapable of taking care of its activities. This paper has focused on three types of bankruptcies, their applications, and differences using the United States as a point of reference. The three types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13.