Eligibility Criteria for Bankruptcy
Bankruptcy is available to individuals or businesses who meet certain eligibility criteria, including:
- Creditor claims over 50% of the debtor's debts are not discharged in bankruptcy;
- The debtor has a valid reason for filing for bankruptcy, such as debt consolidation or wage garnishment;
- The individual or business is insolvent, meaning they do not have enough assets to cover their debts.
There are several types of bankruptcy, including:
- Penalty Collection Act (PCA) Bankruptcy: filed when creditors have previously sued the debtor and obtain a court order;
- Chapter 7 Bankruptcy: liquidation bankruptcy where assets are sold to pay off creditors.
- Chapter 13 Bankruptcy: reorganization bankruptcy where debtors create a repayment plan to pay off debts.
After determining eligibility, individuals or businesses can file for bankruptcy by completing and submitting the filing statement form to the court:
The filing statement is used to disclose all relevant financial information and debts owed.
Once bankruptcy is filed, the debtor will receive a discharge of their debts, meaning they are released from liability for those debts:
- Creditor claims over 50% of the debtor's debts are discharged.
- The debtor must attend a credit counseling session within two months after filing to check on progress and receive guidance.
- Bankruptcy can have long-term effects on credit scores, but debtors can work towards rebuilding their credit over time.