What is bankruptcy? Bankruptcy is declared when a person or organization cannot repay the debts they owe. The person or organization must petition the court to have their debts discharged.
Bankruptcy is normally initiated by the person who cannot pay their debts. Hiring a bankruptcy lawyer is common. Attorneys can help the debtor understand the bankruptcy code, complete the required forms and answer questions. The process is governed by US Bankruptcy Court and bankruptcy laws. The goal for the bankrupt person is to have their debts discharged. After the ruling, a trustee liquidates the estate and other holdings of the debtor in order to repay some or all of the debt.
A discharged bankruptcy occurs when the judge rules that creditors can no longer attempt to collect a debt from the person filing bankruptcy.
There are various types of bankruptcy filings. Some allow the debtor to retain some personal property, other types require that secured debts (like vehicles or property) be sold in order to repay the creditor, at least in part. In this type of bankruptcy, properties often become available to home buyers at a discounted price.
Chapter 7 bankruptcy is the most common bankruptcy filed for in the US. In a Chapter 7 bankruptcy, the debtor surrenders their non-exempt property to a trustee who liquidates it in order to recoup some of the loss for the creditor. When this happens, homes can be repossessed by the lender. Chapter 7 can provide relief from unsecured debt like credit cards, but it won’t stop a foreclosure and it doesn’t discharge debts like student loans, taxes or child support.
Under US Bankruptcy Code, this option is often used by businesses, but sometimes by individuals who have substantial debts. In Chapter 11, a plan of reorganization is proposed to the creditors and is then approved. This means the creditors agree to accept less than what they are owed in order to establish a new repayment plan with the debtor.
Chapter 12 bankruptcy is used for family farmers and fisherman who are unable to repay their debts. There are rules about the total amount of debt that can be discharged under this type of bankruptcy.
There are a variety of chapters of bankruptcy, the debtor should consult with a lawyer to determine what type of bankruptcy might be right for them. In addition, the American Bankruptcy Institute offers consumers help with understanding bankruptcy.
