What is Bankruptcy?
Bankruptcy is a process created by federal law that provides relief for debtors, who can either eliminate their debts or repay their debts under the protection of the bankruptcy court. Bankruptcies can be described as either “liquidations,” the process by which debtors “wipe out” many of their debts, or “reorganizations,” the process by which an individual or a business prepares a plan for the repayment of creditors.
Bankruptcy is set of federal laws designed to provide individuals and businesses who owe more debt than they can pay a “fresh start,” by allowing them an opportunity to re-organize their payment of debt or authorizing the discharge of debt. The person or business entity that owes money is described by the bankruptcy code as the debtor. The entity or person who is owed the money is described as the creditor. The bankruptcy code allows the debtor to either surrender non-exempt assets in exchange for the forgiveness of certain debts, or work out a repayment plan to pay all or a portion of the amount of debt they owe to the creditor, while being protected from the collection efforts of creditors.
Bankruptcy is a Federal Law (11USC) created for the sole purpose of giving debt relief to individuals and businesses. Congress recognized that many people many people will run into financial difficulty throughout their life time so they created bankruptcy laws to protect them from their creditors. Congress understood that there will be many people who want to repay their creditors, but due to unforseen hardships (ie, divorce, high medical bills, loss of a job, etc) they simply cannot repay their creditors.
Bankruptcy is a legal proceeding where a person or company who is having difficulty meeting financial obligations can obtain a fresh start. The right to file for bankruptcy is provided by federal law, and all bankruptcy proceedings are handled in federal bankruptcy court. Filing bankruptcy generally stops most creditors from seeking to collect debts. The goal of most debtors is to obtain a discharge order from the bankruptcy judge. The discharge order has the effect of releasing the debtor from many forms of debt that were incurred prior to the bankruptcy filing.
Bankruptcy is a federal legal proceeding in which, as stated in one noted case many years ago, the “honest but unfortunate debtor” gets a fresh start financially. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.
