Bankruptcy is a legal declaration of the inability of a person to pay its creditors.
Bankruptcy is a legal proceeding involving a person or business that is not able to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor or on behalf of the creditors.
All of the debtor's assets are measured and evaluated and those assets are then used to repay whatever amount they can towards the debtors outstanding debts. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
Bankruptcy offers an individual or business a chance to start fresh by forgiving the debts that they simply cannot pay while offering their creditors a chance to obtain some measure of repayment based on what assets are available.
Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7 (which involves liquidation of assets), Chapter 11 (company or individual "reorganizations") and Chapter 13 (debt repayment with lowered debt covenants or payment plans).
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