Thomas K. McKnight - What Is Bankruptcy?
Bankruptcy is a legal proceeding involving a person or company that is unable to pay off their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of lenders, which is less common. Each of the debtor's assets are measured and evaluated, and the assets may be used to pay back a portion of the outstanding debt.
Bankruptcy grants an individual or business an opportunity to start fresh by forgiving debts that simply can not be paid while giving lenders an opportunity to acquire some measure of repayment based on the individual's or business's assets available for liquidation. Theoretically, the chance to declare bankruptcy benefits the overall economy by allowing people and companies a second chance to earn access to credit and by providing lenders with a portion of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is released of the debt responsibilities that were incurred prior to filing for bankruptcy.
All bankruptcy proceedings in the U.S. are handled via federal courts. Any decisions in federal bankruptcy cases are made by a bankruptcy judge, including whether a debtor is qualified to file and whether they should be discharged of their debts. Administration over bankruptcy cases is often managed by a trustee, an officer appointed by the United States Trustee Program of the Department of Justice, to represent the debtor's estate in the case. There is generally very little direct contact between the debtor and the judge unless there is some opposition made in the case by a lender.
Types of Bankruptcy Filings
Bankruptcy filings in the United States fall under one of several chapters of the Bankruptcy Code, including Chapter 7, which involves the liquidation of assets; Chapter 11, which deals with business or individual reorganizations; and Chapter 13, which arranges for debt repayment with reduced debt covenants or particular repayment plans. Bankruptcy filing expenses differ, depending on the kind of bankruptcy, the complexity of the case, and various other aspects.