Bankruptcy is a legal proceeding that a person or business can take if they can’t pay their debts. Bankruptcy proceedings benefit the economy by providing second chances while ensuring at least partial debt repayment.
Several types of bankruptcies exist like Chapter 11 (business reorganization) or Chapters 7 and 13 (individual bankruptcies). The process begins when a debtor or credit files a petition with a federal bankruptcy court. The court then evaluates the debtor’s assets to determine what can be sold to cover their outstanding debt.
Completing proceedings frees the debtor from debts incurred prior to filing. But not all debts qualify for discharge, including child support, alimony payments and tax debts. Additionally, bankruptcy greatly impacts your credit for several years and can complicate future borrowing.
