is a legal process that allows individuals or businesses to seek relief from overwhelming debts that they are unable to repay. It is a formal declaration that a person or entity is unable to meet their financial obligations and requires assistance in managing or eliminating their debts.
There are several reasons why people file for bankruptcy. One common reason is excessive debt. This can result from various factors such as medical expenses, job loss, divorce, or poor financial management. When individuals accumulate debts that they cannot repay, bankruptcy provides a way to address these financial burdens.
Bankruptcy offers individuals a fresh start by either restructuring their debts or liquidating their assets to repay creditors. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 1
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of non-exempt assets to repay creditors. However, certain assets such as a primary residence, personal belongings, and retirement accounts may be exempt from liquidation. Once the assets are sold, the remaining eligible debts are discharged, meaning the debtor is no longer legally obligated to repay them.
Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows individuals with a regular income to create a repayment plan to gradually pay off their debts over a period of three to five years. This type of bankruptcy enables debtors to keep their assets while making affordable monthly payments to creditors.
Filing for bankruptcy provides immediate relief from creditor harassment, wage garnishments, and foreclosure proceedings. It also allows individuals to regain control over their finances and work towards rebuilding their credit. However, bankruptcy does have long-term consequences, including a negative impact on credit scores and the potential for limited access to credit in the future.
In summary, bankruptcy is a legal process that offers individuals and businesses a way to address overwhelming debts that they cannot repay. It provides relief by either liquidating assets to repay creditors or creating a repayment plan to gradually pay off debts. People file for bankruptcy due to excessive debt caused by various factors, and it offers them a fresh start and a chance to regain control over their finances.