What Is Bankruptcy?
Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts.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 debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid while giving creditors a chance to obtain some measure of 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 second chance to gain access to credit and by providing creditors with a portion of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations that were incurred prior to filing for bankruptcy.
All bankruptcy cases in the United States are handled through federal courts. Any decisions in federal bankruptcy cases are made by a bankruptcy judge, including whether a debtor is eligible to file and whether they should be discharged of their debts. Administration over bankruptcy cases is often handled by a trustee, an officer appointed by the United States Trustee Program of the Department of Justice, to represent the debtor's estate in the proceeding. There is usually very little direct contact between the debtor and the judge unless there is some objection made in the case by a creditor.
Bankruptcy filings in the United States fall under one of several chapters of the Bankruptcy Code, including Chapter 7, which involves the liquidation of assets; Chapter 11, which deals with company or individual reorganizations; and Chapter 13, which arranges for debt repayment with lowered debt covenants or specific payment plans. Bankruptcy filing costs vary, depending on the type of bankruptcy, the complexity of the case, and other factors.
Individualsand in some cases businesses, with few or no assetstypically file Chapter 7 bankruptcy. It allows them to dispose of their unsecured debts, such as credit card balances and medical bills. Those with nonexempt assets, such as family heirlooms (collections with high valuations, such as coin or stamp collections);second homes; and cash, stocks, or bonds must liquidate the property to repay some or all of their unsecured debts. A person filing Chapter 7 bankruptcy is basically selling off their assets to clear their debt. People who have no valuable assets and only exempt propertysuch as household goods, clothing, tools for their trades, and a personal vehicle worth up to a certain valuemay end up repaying no part of their unsecured debt.
Businesses often file Chapter 11 bankruptcy, the goal of which is to reorganize, remain in business, and once again become profitable. Filing Chapter 11 bankruptcy allows a company to create plans for profitability, cut costs, and find new ways to increase revenue. Their preferred stockholders, if any, may still receive payments, though common stockholders will not.
For example, a housekeeping business filing Chapter 11 bankruptcy might increase its rates slightly and offer more services to become profitable. Chapter 11 bankruptcy allows the business to continue conducting its business activities without interruption while working on a debt repayment plan under the court's supervision. In rare cases, individuals can also file Chapter 11 bankruptcy.
Individuals who make too much money to qualify for Chapter 7 bankruptcy may file under Chapter 13, also known as a wage earner's plan. It allows individualsas well as businesses, with consistent incometo create workable debt repayment plans. The repayment plans are commonly in installments over the course of a three- to five-year period. In exchange for repaying their creditors, the courts allow these debtors to keep all of their property, including otherwise nonexempt property.
While Chapter 7, Chapter 11, and Chapter 13 are the most common bankruptcy proceedings, especially as far as individuals are concerned, the law also provides for several other types:
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 all debts qualify to be discharged. Some of these include tax claims, anything that was not listed by the debtor, child support or alimony payments, personal injury debts, and debts to the government. In addition, any secured creditor can still enforce a lien against property owned by the debtor, provided that the lien is still valid.
Debtors do not necessarily have the right to a discharge. When a petition for bankruptcy has been filed in court, creditors receive a notice and can object if they choose to do so. If they do, they will need to file a complaint in the court before the deadline. This leads to the filing of an adversary proceeding to recover money owed orenforce a lien.
The discharge fromChapter 7 is usually granted about four months after the debtor files to petition for bankruptcy. For any other type of bankruptcy, the discharge can occur when it becomes practical.
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 can lower your credit rating, making it more difficult to get a loan, mortgage, or credit card, or to buy a home or business, or rent an apartment.
If you're trying to decide whether you should file for bankruptcy, your credit is probably already damaged. But it's worth noting that a Chapter 7 filing will stay on your credit report for 10 years, while a Chapter 13 will remain there for seven. Any creditors or lenders you apply to for new debt (such as a car loan, credit card, line of credit, or mortgage) will see the discharge on your report, which can prevent you from getting any credit.
See original here:
Bankruptcy Definition - Investopedia
- Alitalia Files for Bankruptcy, but Italy Balks at a Third Bailout - New York Times - May 3rd, 2017 [May 3rd, 2017]
- A Slow Bankruptcy Process Stops Locale-Reviving Jobs - Wall Street Journal (subscription) - May 3rd, 2017 [May 3rd, 2017]
- Bankruptcy auction for property of NASCAR artist Sam Bass ... - Charlotte Observer - May 3rd, 2017 [May 3rd, 2017]
- Obamacare helped make a 50% dent in personal bankruptcies ... - MarketWatch - May 3rd, 2017 [May 3rd, 2017]
- Pennsylvania Toy Seller Files For Bankruptcy - Wall Street Journal (subscription) - May 3rd, 2017 [May 3rd, 2017]
- Puerto Rico Enters Bankruptcy - Wall Street Journal (subscription) - May 3rd, 2017 [May 3rd, 2017]
- Puerto Rico Declares a Form of Bankruptcy - New York Times - May 3rd, 2017 [May 3rd, 2017]
- Farmer Mac Early Exclusive: Farm Bankruptcy Rates Low - AgWeb - June 6th, 2017 [June 6th, 2017]
- Washington weighs in on Westinghouse bankruptcy | News ... - Aiken Standard - June 6th, 2017 [June 6th, 2017]
- 4 Reasons Why Puerto Rico's 'Bankruptcy' Process Matters to US Residents - NBCNews.com - June 6th, 2017 [June 6th, 2017]
- Valeant: There Is Significant Bankruptcy Risk Here - Seeking Alpha - June 6th, 2017 [June 6th, 2017]
- Westinghouse bankruptcy draws federal scrutiny as VC Summer nuclear project's future remains unclear - Charleston Post Courier - June 6th, 2017 [June 6th, 2017]
- Bebe Avoids Bankruptcy Filing With Real-Estate Deals - Wall Street Journal (subscription) - June 6th, 2017 [June 6th, 2017]
- rue21 Bankruptcy Objections Filed - Bankrupt Company News (press release) (blog) - June 7th, 2017 [June 7th, 2017]
- ISH to emerge from bankruptcy as Seacor subsidiary - WorkBoat (blog) - June 7th, 2017 [June 7th, 2017]
- Curtains for the Pearl, as the Theater Company Files for Bankruptcy - New York Times - June 7th, 2017 [June 7th, 2017]
- Bankruptcy fraud earns Pepperell man 18 months | Boston Herald - Boston Herald - June 9th, 2017 [June 9th, 2017]
- Vikki Lindemuth favors appointment of trustee to handle husband's bankruptcy - Topeka Capital Journal - June 9th, 2017 [June 9th, 2017]
- Creditors seek to force bankruptcy of Tinley Park firm - Chicago Tribune - June 9th, 2017 [June 9th, 2017]
- Abengoa Bankruptcy Liquidation Plan Confirmed - Bankrupt Company News (press release) (blog) - June 9th, 2017 [June 9th, 2017]
- Retailer BCBG Unveils Going-Concern Bankruptcy Sales - Wall Street Journal (subscription) - June 9th, 2017 [June 9th, 2017]
- For Hartford, bankruptcy not an easy way out - The CT Mirror - June 9th, 2017 [June 9th, 2017]
- Why Students Should Be Able To Declare Bankruptcy On Their Loans - ATTN: - June 10th, 2017 [June 10th, 2017]
- Bankruptcy forces curtain to fall on community theater - Chicago Tribune - June 10th, 2017 [June 10th, 2017]
- Ex-Pepperell man jailed in bankruptcy case - Lowell Sun - June 10th, 2017 [June 10th, 2017]
- Owner of Joe's Crab Shack files for bankruptcy | Jacksonville News ... - Florida Times-Union - June 11th, 2017 [June 11th, 2017]
- Why test for bankruptcy law is a larger test for India - The Indian Express - June 11th, 2017 [June 11th, 2017]
- Tax trouble firms' most likely road to bankruptcy - Albuquerque Journal - June 12th, 2017 [June 12th, 2017]
- Darius Miles' Bankruptcy Sale Includes Signed LeBron James, Larry ... - Bleacher Report - June 12th, 2017 [June 12th, 2017]
- Winter Haven attorney gets prison for concealing assets in ... - News Chief - June 12th, 2017 [June 12th, 2017]
- Children's retailer Gymboree files bankruptcy, closing up to 450 stores - USA TODAY - June 12th, 2017 [June 12th, 2017]
- Another retailer has filed for bankruptcy - mySanAntonio.com - June 13th, 2017 [June 13th, 2017]
- Esperanza Unida bankruptcy delays city redevelopment efforts - BizTimes.com (Milwaukee) - June 13th, 2017 [June 13th, 2017]
- Square 1 Burgers files bankruptcy, blames over-saturated restaurant market - Orlando Sentinel - June 13th, 2017 [June 13th, 2017]
- Big KC manufacturer files for bankruptcy - Kansas City Business Journal - June 13th, 2017 [June 13th, 2017]
- Canadians Have Been Refinancing To Delay Bankruptcy - Seeking Alpha - June 13th, 2017 [June 13th, 2017]
- Gymboree Files For Bankruptcy, Plans To Close At Least 375 Stores - Forbes - June 13th, 2017 [June 13th, 2017]
- Sears, J. Crew, Claire's Are Bankruptcy Risks (SHLD) | Investopedia - Investopedia - June 14th, 2017 [June 14th, 2017]
- Tampa's Square 1 Burgers files for bankruptcy protection - Tampabay.com - June 14th, 2017 [June 14th, 2017]
- RBI, Banks And NPAs - First, Reform India's Bankruptcy Code, Then Force Defaulters Into It - Forbes - June 14th, 2017 [June 14th, 2017]
- Retail bloodbath: Bankruptcy filings pile up - CNNMoney - June 14th, 2017 [June 14th, 2017]
- Bankruptcy cases show we've become a nation of selective justice - New York Daily News - June 14th, 2017 [June 14th, 2017]
- Soupman of 'Seinfeld' Soup Nazi fame files for bankruptcy protection - USA TODAY - June 14th, 2017 [June 14th, 2017]
- Strack & Van Til bankruptcy case moved to Illinois - nwitimes.com - June 16th, 2017 [June 16th, 2017]
- Lawsuit: Wells Fargo revised mortgages in bankruptcy without permission - USA TODAY - June 16th, 2017 [June 16th, 2017]
- France's CGG files for bankruptcy protection - MarketWatch - June 16th, 2017 [June 16th, 2017]
- 'Soup Nazi' company files for bankruptcy - CNNMoney - June 16th, 2017 [June 16th, 2017]
- France's CGG Group Files for Bankruptcy Protection - Wall Street Journal (subscription) - June 17th, 2017 [June 17th, 2017]
- Company of businessman behind polo facility expansion files for bankruptcy protection - Fauquier Times - June 17th, 2017 [June 17th, 2017]
- Vehicles involved in Dusty Old Cars bankruptcy to be auctioned - WMUR Manchester - June 17th, 2017 [June 17th, 2017]
- Could Illinois be the first state to file for bankruptcy? - CBS News - June 17th, 2017 [June 17th, 2017]
- Takata Said to Ready Bankruptcy Filing Ahead of Sale to Rival - New York Times - June 17th, 2017 [June 17th, 2017]
- Greece escapes brush with bankruptcy but austerity still bites - FRANCE 24 - June 17th, 2017 [June 17th, 2017]
- Pawnbroker A-OK cites embezzlement in multimillion-dollar bankruptcy - Wichita Eagle - June 18th, 2017 [June 18th, 2017]
- Clock is Ticking on India's Bad Bank Debts Under Bankruptcy Laws - Bloomberg - June 18th, 2017 [June 18th, 2017]
- Surveyor dealing with fine, bankruptcy - Muncie Star Press - June 18th, 2017 [June 18th, 2017]
- Mode Media Assets Acquired by Wedding Ad Network BrideClick in Bankruptcy Deal - Variety - June 18th, 2017 [June 18th, 2017]
- San Bernardino officially out of bankruptcy - San Bernardino County Sun - June 20th, 2017 [June 20th, 2017]
- 22 retailers that are at serious risk of bankruptcy - Chron.com - June 20th, 2017 [June 20th, 2017]
- What to expect in defective air bag maker Takata's looming bankruptcy - USA TODAY - June 20th, 2017 [June 20th, 2017]
- Could Illinois file for bankruptcy? - FOX Illinois - June 20th, 2017 [June 20th, 2017]
- Exploding airbags: Takata shares plummet 17% on bankruptcy reports - CNNMoney - June 20th, 2017 [June 20th, 2017]
- These 14 Stores May Be on the Brink of Bankruptcy | NBC Southern ... - NBC Southern California - June 21st, 2017 [June 21st, 2017]
- Medical bankruptcies - WEAR - June 21st, 2017 [June 21st, 2017]
- After five long years, San Bernardino is officially out of bankruptcy. What's next? - Los Angeles Times - June 21st, 2017 [June 21st, 2017]
- Takata to file for bankruptcy Monday, SMFG to provide bridge loan: sources - Reuters - June 22nd, 2017 [June 22nd, 2017]
- Sears Canada files for bankruptcy - CNNMoney - June 22nd, 2017 [June 22nd, 2017]
- Foundation Healthcare Chapter 11 Bankruptcy - Bankrupt Company News (press release) (blog) - June 23rd, 2017 [June 23rd, 2017]
- Implant Sciences Bankruptcy Objections Filed - Bankrupt Company News (press release) (blog) - June 23rd, 2017 [June 23rd, 2017]
- Puerto Rico Bankruptcy: Uncertainty, But Also Stock Profit Opportunity - Seeking Alpha - June 23rd, 2017 [June 23rd, 2017]
- Lakeland day care files for bankruptcy without paying workers - wreg.com - June 23rd, 2017 [June 23rd, 2017]
- Sears Canada Closing 59 Stores as It Seeks Bankruptcy Protection - Fortune - June 23rd, 2017 [June 23rd, 2017]
- Takata to file for bankruptcy Monday, SMBC to provide bridge loan: Sources - CNBC - June 23rd, 2017 [June 23rd, 2017]
- How Sears Canada's Bankruptcy Impacts Sears Holdings Corp. - Seeking Alpha - June 23rd, 2017 [June 23rd, 2017]
- Augusta native sworn in as newest Bankruptcy Court judge - The Augusta Chronicle - June 24th, 2017 [June 24th, 2017]
- Takata reportedly planning to file for bankruptcy - CNBC - June 24th, 2017 [June 24th, 2017]
- Bankruptcy - money_selfhelp - June 24th, 2017 [June 24th, 2017]
- Japan press - Takata expected to file for bankruptcy protection in Tokyo - ForexLive - June 26th, 2017 [June 26th, 2017]
- Bankruptcy guru Edward Altman sees similarities to 2007 in the credit market today - Yahoo Finance - June 26th, 2017 [June 26th, 2017]
- Takata's woes expected to continue beyond bankruptcy filing amid mounting recall costs - CNBC - June 26th, 2017 [June 26th, 2017]