What Is Bankruptcy?

What is Bankruptcy?

Bankruptcy is a federal bankruptcy reform law that allows individuals or businesses to reorganize or liquidate their assets to pay off creditors. There are several types of bankruptcy, including Chapter 7 (liquidation), Chapter 11 (reorganization), and Chapter 13 (reayment plan).

• Chapter 7: Liquidation - the debtor sells off most assets, and the remaining assets are distributed among creditors.
• Chapter 11: Reorganization - the business reorganizes its operations to pay off debts over a period of time.
• Chapter 13: Repayment Plan - the debtor creates a plan to repay debts over three years.

Implications of Bankruptcy

Bankruptcy can have significant implications on personal and financial well-being. It may lead to:

1. Worse debt: Creditors may take control of assets, leading to an increase in debt.
2. Negative credit score: Bankruptcy can significantly lower your credit score.
3. Emotional distress: The process can be stressful and emotionally challenging for those affected.