What Is Bankruptcy?
Bankruptcy is a legal proceeding involving an individual or business that is unable to pay off their outstanding debts. The bankruptcy process begins with a request filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets might be used to pay back a part of the outstanding debt.
Bankruptcy grants an individual or company an opportunity to start fresh by forgiving debts that simply can not be paid while offering lenders a chance to obtain some measure of repayment based on the person's or company's assets available for liquidation. Theoretically, the chance to file for bankruptcy benefits the overall economy by allowing people and businesses 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 alleviated of the debt responsibilities that were incurred before declaring bankruptcy.
All bankruptcy proceedings in the United States 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 typically 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 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 creditor.
Kinds of Bankruptcy Filings
Bankruptcy filings in the United States fall under one of several chapters of the Bankruptcy Code, consisting of 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 lowered debt covenants or particular repayment plans. Bankruptcy filing costs differ, depending on the type of bankruptcy, the complexity of the case, and other factors.