Definition:
Bankruptcy is a legal process that allows individuals or businesses to reorganize their debts or liquidate their assets to pay off creditors. It’s a way to get out of debt when there’s no other viable option.
Types of bankruptcy:
- Chapter 7 bankruptcy: A liquidation proceeding where the debtor’s assets are sold to pay off creditors.
- Chapter 11 bankruptcy: A reorganization proceeding that allows businesses to restructure their debts and continue operating.
- Chapter 13 bankruptcy: A reorganization proceeding for individuals that allows them to repay their debts over a period of time.
Key points about bankruptcy:
- Debt relief: Bankruptcy can provide significant debt relief for individuals and businesses.
- Credit damage: Bankruptcy can have a negative impact on a person’s or business’s credit score.
- Legal process: Bankruptcy is a complex legal process that requires the assistance of a bankruptcy attorney.
- Eligibility: Individuals and businesses must meet certain eligibility requirements to file for bankruptcy.
Why do people or businesses file for bankruptcy?
- Overwhelming debt: When debt becomes overwhelming and cannot be managed through other means.
- Financial hardship: Bankruptcy can provide relief from financial hardship caused by job loss, medical expenses, or other unforeseen circumstances.
- Business failure: Businesses may file for bankruptcy if they are unable to meet their financial obligations.
It’s important to note that bankruptcy should be considered as a last resort, and it’s essential to consult with a bankruptcy attorney to understand the potential consequences and explore other options.
In essence, bankruptcy is a legal process that allows individuals or businesses to reorganize their debts or liquidate their assets to pay off creditors.
