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 starts with a petition 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 can be used to pay off a portion of the outstanding debt.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply can not be paid while giving creditors an opportunity to acquire some measure of repayment based on the individual's or company's assets available for liquidation. Theoretically, the chance to declare bankruptcy benefits the general economy by allowing people and companies a second chance to receive 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 United States 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 absolved of their debts. Administration over bankruptcy cases is typically managed by a trustee, an officer selected 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 opposition made in the case by a creditor.
Types of Bankruptcy Filings
Bankruptcy filings in the U.S. 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 reduced debt covenants or specific repayment plans. Bankruptcy filing costs vary, depending on the kind of bankruptcy, the complexity of the case, and various other factors.