Filing for bankruptcy is a legal process that allows individuals and businesses to resolve outstanding debts owed to creditors while offering them some protection during the process. When a person or business is unable to repay outstanding debts or obligations, they can file for bankruptcy, which offers a fresh start for people who can no longer pay their debts. Bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code.
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 such as cities, towns, villages, taxing districts, municipal utilities, and school districts may file under Chapter 9 to reorganize. 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. When the bankruptcy court issues a discharge, the debtor is relieved of their liability to pay back the listed debts.
It is important to note that filing for bankruptcy has serious consequences, and it is not the best option for everyone. It is essential to educate oneself before filing, as there is a process to follow, and it is not simply a matter of telling a judge "Im broke!" and asking for mercy.
