Bankruptcy

Bankruptcy is a legal status in which a person or organization is unable to repay its debts. It provides a framework for orderly relief and the redistribution of assets under court supervision. The proceeding may involve liquidation of assets or reorganization of obligations to repay creditors.

Types include liquidation and reorganization. In the United States, Chapter 7 involves liquidation of non-exempt assets and discharge of most unsecured debts; Chapter 11 covers reorganization for businesses and some individuals; Chapter 13 provides a court-approved repayment plan for individuals with regular income. Other countries use different regimes.

Process usually begins with a petition by the debtor or creditors. An automatic stay halts collection actions. A trustee or administrator may liquidate assets or supervise a repayment plan. Creditors vote on the plan, and the court approves a discharge that cancels eligible debts after requirements are met.

Effects include a discharge of many debts, enabling a fresh start. Some obligations survive, such as certain taxes, student loans, child support, alimony, most secured debts if not reaffirmed, and fines. Exemptions limit asset loss, and bankruptcy can remain on public records and affect credit for several years.

Eligibility depends on insolvency, income, assets, and local means tests. The process can affect employment, housing, and insurance. Alternatives include debt consolidation or settlement; businesses may seek restructuring outside bankruptcy.

Post-bankruptcy, individuals may rebuild credit through prudent financial behavior. Internationally, regimes vary, but the aim is to provide a legally recognized path to resolve unpayable debts.