Bankruptcy is a legal process that provides individuals or businesses with relief from their debts when they cannot pay their creditors. It is a way for debtors to eliminate or repay their debts, while also providing protection from creditors who may be seeking to collect on those debts.
In a bankruptcy proceeding, a debtor will typically file a petition with a court, and the court will then determine whether the debtor is eligible for bankruptcy and which type of bankruptcy is appropriate. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13, while businesses can file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy.
Chapter 7 bankruptcy involves liquidating the debtor’s assets to pay off creditors, while Chapter 13 bankruptcy involves reorganizing the debtor’s debts into a manageable repayment plan. In a Chapter 11 bankruptcy, a business may restructure its debts and operations to continue operating while paying off creditors.
The bankruptcy process can be complex and often requires the assistance of a bankruptcy attorney. It is important to note that bankruptcy can have long-term effects on a debtor’s credit score and financial future, so it should only be considered as a last resort when other options have been exhausted.