Bankruptcy is a legal process to restructure or
absolve ones debts. It is not a process to be
used lightly. Bankruptcy can stop
foreclosures, harassment from creditors and stop
Although there are several forms of bankruptcy, for
most individuals there are only two choices; chapter 7
(liquidation) or chapter 13 (reorganization).
In a liquidation bankruptcy where the debtor's
assets are much less than his/her debts, assets of the
debtor are liquidated and the proceeds are paid to the
creditors as payment in full.
Bankruptcy can also be used to restructure payments
to creditors. A debtor unable to meet his/her
current obligations can retain all assets and
reorganize payments to creditors under a court
enforced plan. Generally payments are reduced to
a manageable amount and the total amount of debts may
even be reduced.
Bankruptcy results in a fresh start for the debtor
and will remain on the debtor's credit record for up
to ten years. Filing for bankruptcy is not
difficult and over one million people go through the
process in the United States every year.
Bankruptcy is often the best solution for a debtor
and the creditors. For most, it is a last resort
for relief from a mountain of debt and few assets.
Some debts may not be dischargeable during a
bankruptcy and the debtor may still retain substantial
debts. After bankruptcy the debtor is left with
a generally poorer credit rating depending upon the
type of bankruptcy used. The mere use of
bankruptcy can have a very negative effect on most