Bankruptcy Basics

Bankruptcy is a legal process that allows a person or business to reorganize or discharge their debts. There are several different types of bankruptcy, but the two most common for individuals are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy involves the sale of a debtor's non-exempt assets to pay off their creditors. After the assets are sold, any remaining debt is discharged. Chapter 7 bankruptcy is also known as "liquidation bankruptcy" because it involves the liquidation of a debtor's assets.

Chapter 13 bankruptcy involves the creation of a repayment plan to pay off some or all of a debtor's debts over a period of three to five years. The debtor must have a regular source of income in order to qualify for Chapter 13 bankruptcy. At the end of the repayment period, any remaining debt is discharged.

Both Chapter 7 and Chapter 13 bankruptcy offer a way for individuals to get a fresh start financially.