What Is Bankruptcy?
Bankruptcy is a legal proceeding initiated when a person or business is unable to repay outstanding debts or obligations. It offers a fresh start for people who can no longer afford to pay their bills. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the
How Bankruptcy Works
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that they can't pay. Meanwhile, creditors have a chance to get some repayment based on the individual's or business's assets available for liquidation. In theory, the ability to file for bankruptcy benefits the overall economy by allowing people and companies a s
What Are The Types of Bankruptcy Filings?
Bankruptcy filings in the United States are categorized by which chapter of the Bankruptcy Code applies. For example, Chapter 7 involves the liquidation of assets, Chapter 11 deals with company or individual reorganizations, and Chapter 13arranges for debt repayment with lowered debt covenants or specific payment plans.
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Being Discharged from Bankruptcy
When a debtor receives a discharge order, they are no longer legally required to pay the debts specified in the order. What's more, any creditor listed on the discharge order cannot legally undertake any type of collection activity (such as making phone calls or sending letters) against the debtor once the discharge order is in force. However, not
Advantages and Disadvantages of Bankruptcy
Declaring bankruptcy can help relieve you of your legal obligation to pay your debts and save your home, business, or ability to function financially, depending on which kind of bankruptcy petition you file. But it also will likely lower your credit rating, making it more difficult to get a loan, mortgage, or credit card, buy a home or business, or
Alternatives to Bankruptcy
If you want to avoid bankruptcy, several alternatives may be able to reduce your debt obligations. Negotiating with your creditors without involving the courts can sometimes work to the benefit of both sides. Rather than risk receiving nothing, a creditor might agree to a repayment schedule that reduces your debt or spreads your payments over a lon
The Bottom Line
Bankruptcy can provide the financial benefit of wiping out debt you cannot pay and helping you start fresh, but there are consequences. Having a bankruptcy on your credit history can harm your credit score and make it more difficult to get loans in the future, Before filing for bankruptcy, weigh all your options for resolving your debt, including a