Bankruptcy

What Is Bankruptcy?
You hear about it almost every day: Big corporations all over the world declare bankruptcy to get out of debt. And, while you’re likely not millions of dollars in debt, you—like many others—are left wondering: What exactly is bankruptcy and how will it help get me out of debt?

At its most basic, bankruptcy is a federal legal proceeding that gives people who need to get out of debt and are unable to pay their bills the right to start again financially. More specifically, bankruptcy is a federal court proceeding that prohibits collectors from continuing to collect debts from an individual who has declared bankruptcy until the debts are sorted out according to federal Bankruptcy laws.

Because there are many different debt situations, there are also a number of different types of bankruptcy to help individuals and businesses get out of debt:

1. Chapter 7, also called “Straight Bankruptcy,” requires a debtor to be within a certain asset limit or to give up property over that limit to be sold by the court. A person who successfully declares Chapter 7 bankruptcy is able to get out of debt completely.
2. Chapter 11, also called “Reorganization,” is way for for businesses or individuals with massive debts to get out of debt.
3. Chapter 12 is not very familiar to most people as it is reserved specifically to help farmers get out of debt.
4. Chapter 13, the Wage Earner Plan, requires a debtor to repay at least some portion of the debts from their current wages to get out of debt.