Bankruptcy simply means inability of the debtor to pay his creditors. His liabilities have overshot his assets and he is no more able to balance the resources to clear the debts. In such cases, the debtor can file a bankruptcy application which is called a voluntary bankruptcy. If the debtor is reluctant to file such an application, then the creditors can file 'involuntary bankruptcy application' against the debtor. The Bankruptcy law is known to have been first enacted in England in the year 1542 and it was later enacted in US also. Thereafter many countries across the world have enacted laws governing bankruptcy.
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Main features:
At the outset, the aim of bankruptcy law is to bail out the applicant from the financial mess so that the debtor can rejuvenate himself financially. In this process the law also tries to eliminate frivolous applicants seeking bankruptcy. With this in mind, the federal law brought out several changes to the bankruptcy law and made the process of scrutiny of the applications more stringent. For example, the bankruptcy applicants can be filed under various chapters of federal law of US. There are chapters 7 and 13 which stipulate the norms for filing applications by corporate industrial houses or partnership or other business establishments. Chapter 13 deals with the law governing the applications made by individuals. Normally, individuals are not allowed to file application under chapter 7 unless the individual has income which is more than the state's median.
The procedure:
The federal law stipulates the procedure for granting bankruptcy. In the first step, the application has to be made through a bankruptcy attorney only. The attorney briefs the applicant about the steps involved in getting the required remedy. Further, the court before considering the application may require the debtor to undergo counseling. The counseling is given by experts in the field. This is a move to instill confidence in the debtor and explore the possibility of reviving repayment capacity. They would also guide the applicant in finding ways to clear the debts and lessen his burden. Thereafter the process of considering the application by the courts would commence. Normally, it would take some months before the application is finally disposed off by the courts.
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