What is Personal Bankruptcy?
Personal bankruptcy is the means by which individuals legally liquidate or reorganize their assets in an effort to get themselves out of debt. The two main chapters of the U.S. Code under which individuals can file personal bankruptcy are Chapter 7 and Chapter 13. Chapter 7 is a complete liquidation of assets; Chapter 13 is a reorganization plan, which typically lasts for 3-5 years.
A bankruptcy filed under Chapter 7 is called a “liquidation bankruptcy,” and can apply to individuals or businesses. If you file a Chapter 7 case, the goal of the procedure will be to liquidate (sell for cash) your bankrupt estate. Some of your assets may be exempt from the bankrupt estate and they will not be liquidated. For the assets that are part of the bankrupt estate (known as “nonexempt” assets), a trustee will be appointed to oversee the liquidation process. Once the assets have been liquidated, the proceeds from the sale will be distributed to creditors according to prescribed rules. Many Chapter 7 cases involve only exempt assets, so that creditors are not able to recover any money from the bankrupt estate. After you have completed the Chapter 7 process, most or all of your debts will be discharged and you will be given a fresh start. You can file Chapter 7 bankruptcy only once every six years. See also… Q & A: Consumer Bankruptcy ….
