What Is Bankruptcy?
Bankruptcy is a legal proceeding involving an individual or business that is unable to pay back their outstanding debts. The bankruptcy procedure begins with a request filed by the debtor, which is most common, or on behalf of creditors, which is less common. Each of the debtor's assets are measured and evaluated, and the assets can be used to pay off a part of the outstanding debt.
Bankruptcy gives an individual or business an opportunity to start fresh by forgiving debts that simply can not be paid while providing lenders an opportunity to obtain some measure of repayment based on the individual's or business's assets available for liquidation. Theoretically, the chance to declare bankruptcy benefits the general economy by allowing individuals and companies a second chance to receive access to credit and by providing creditors with a portion of debt repayment. Upon the successful completion of bankruptcy procedures, the debtor is released of the debt obligations that were incurred before filing for bankruptcy.
All bankruptcy proceedings in the U.S. are managed via federal courts. Any decisions in federal bankruptcy cases are made by a bankruptcy judge, including whether a debtor is eligible to file and whether they should be cleared of their debts. Administration over bankruptcy cases is often handled 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 proceeding. There is generally very little direct contact between the debtor and the judge unless there is some objection made in the case by a lender.
Kinds Of Bankruptcy Filings
Bankruptcy filings in the U.S. fall under one of several chapters of the Bankruptcy Code, including Chapter 7, which involves the liquidation of assets; Chapter 11, which deals with company or individual reorganizations; and Chapter 13, which arranges for debt repayment with reduced debt covenants or particular repayment plans. Bankruptcy filing costs differ, depending on the kind of bankruptcy, the complexity of the case, and various other aspects.