What is Bankruptcy?

Bankruptcy is a legal process that allows individuals, businesses, and other entities to seek relief from debts they cannot repay. During the bankruptcy process, the debtor (the person or entity declaring bankruptcy) can either discharge their debts entirely or develop a plan to repay them under the protection of the bankruptcy court. Here’s a brief overview:

Types of Bankruptcy: In the U.S., there are several types of bankruptcy, each referred to by its chapter in the U.S. Bankruptcy Code:

• Chapter 7 (Liquidation): Often referred to as “straight” bankruptcy, this involves the sale of a debtor’s non-exempt property, and the proceeds are used to pay creditors. Any remaining unsecured debts can be discharged.
• Chapter 11 (Reorganization): Mostly used by businesses. Allows them to restructure their debts and continue operating. The debtor proposes a plan to pay off creditors over time.
• Chapter 13 (Wage Earner’s Plan): For individuals with regular income. It allows debtors to develop a plan to repay all or part of their debts over three to five years.