Filing for bankruptcy is a legal process initiated when an individual or business is unable to repay outstanding debts or obligations. It offers a fresh start for people who can no longer manage their debts and can help eliminate all or part of their debt or create a plan to repay debts. The bankruptcy process begins when the debtor files a petition with the bankruptcy court, which may be filed by an individual, by spouses together, or by a corporation or other entity. There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code. Individuals may file Chapter 7 or Chapter 13 bankruptcy, depending on the specifics of their situation. Municipalities may file under Chapter 9 to reorganize, and businesses may file bankruptcy under Chapter 7 to liquidate or Chapter 11 to reorganize.
Before filing for bankruptcy, individuals must meet some requirements, including demonstrating that they cannot repay their debts and completing credit counseling with a government-approved credit counselor. Once filed, a bankruptcy judge makes decisions, including whether a debtor is eligible to file and whether they should be discharged of their debts. Bankruptcy can have serious consequences, including severe damage to a persons credit score, and should be considered a last resort. It is important to note that filing for bankruptcy does not necessarily mean that an individual has failed financially or is irresponsible with their finances.
