Bankruptcy is a legal process that allows a person or business to reorganize or eliminate their debts.
The bankruptcy process begins when an individual or business files a petition with the bankruptcy court. If the petition is approved, the individual or business is assigned a bankruptcy trustee, who is responsible for managing the bankruptcy process.
There are several types of bankruptcy, including Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 bankruptcy, also known as a “liquidation” bankruptcy, involves the sale of an individual’s or business’s non-exempt assets to pay off their debts. If the individual or business does not have any non-exempt assets, their debts may be discharged (cancelled) without the need to sell any assets.
Chapter 11 bankruptcy, also known as a “reorganization” bankruptcy, is commonly used by businesses. It involves the creation of a repayment plan to pay off a portion of the business’s debts over time. The business remains in operation during the bankruptcy process.
Chapter 13 bankruptcy, also known as a “wage earner’s” bankruptcy, is for individuals who have a regular income and are seeking to repay their debts over a period of time.
Under a Chapter 13 bankruptcy, the individual creates a repayment plan that lasts for three to five years. During this time, the individual’s debts are not discharged, but rather, they are paid off according to the terms of the repayment plan.
The bankruptcy process can be complex, and it is important to seek the advice of a bankruptcy attorney if you are considering filing for bankruptcy.