Bankruptcy related to an individual person

Writer and editor - Bryan Robinson | Updated on 2023-03-04

Bankruptcy is a legal process through which individuals or businesses can eliminate or repay their debts via restructuring what they owe. The bankruptcy process can be initiated by the debtor or the creditor. In the United States, there are two types of bankruptcy available to individuals:

Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is also known as liquidation bankruptcy. It is the most common type of bankruptcy filed by individuals. Under Chapter 7, the debtor’s assets are sold off to repay creditors. Most people who file for Chapter 7 bankruptcy have very little property and income.

Chapter 13 bankruptcy is also known as reorganization bankruptcy. It is less common than Chapter 7 bankruptcy, but it may be a better option for some people. Under Chapter 13, the debtor’s assets are not sold off. Instead, the debtor creates a repayment plan to repay creditors over time. The repayment period is usually three to five years.

What is bankruptcy?

As stated above, bankruptcy can be filed for by individuals (a consumer bankruptcy) or businesses (a business bankruptcy). The most common types of bankruptcies are Chapter 7 bankruptcy, which involves the sale of assets to repay debts, and Chapter 13 bankruptcy, which involves reorganizing and repaying debt over time.

Bankruptcy can be a very effective way to get out of debt and restart your financial life. However, it is important to understand that bankruptcy is not a free pass from all your debts. You will still be responsible for repaying some or all of your debts, depending on the type of bankruptcy you file for and the laws in your state.

Bankruptcy has some long-lasting consequences. It should only be considered as a last resort, after all other options for dealing with debt have been explored and exhausted.

Causes of personal bankruptcy

Personal bankruptcy can be caused by:

  • Overwhelming levels of debt caused by overspending
  • Loss of income
  • Major life changes such as divorce or illness

How to file for personal bankruptcy

Bankruptcy can be a helpful tool for people who are struggling to make ends meet, but it’s important to understand the implications of filing for bankruptcy before you take this step.

As stated earlier, there are two types of bankruptcy that individuals can file for: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is also known as “liquidation bankruptcy” because it entails the sale of your assets in order to repay your debts. Chapter 13 bankruptcy is also known as “reorganization bankruptcy” because it allows you to reorganize your debts and create a repayment plan.

Before you file for bankruptcy, you’ll need to consider which type of bankruptcy is right for you and whether you meet the eligibility requirements. Once you’ve decided to proceed with bankruptcy, you’ll need to complete the necessary paperwork and attend a meeting of your creditors, during which they’ll have an opportunity to object to your discharge. If your creditors don’t object, your case will be scheduled for a hearing before a bankruptcy judge, who will decide whether to grant your discharge.

If you’re considering filing for personal bankruptcy, it’s important to understand the process and implications before taking this step.

The bankruptcy process

The bankruptcy process is supervised by a bankruptcy trustee, and the debtor’s assets are divided among the creditors in accordance with the bankruptcy laws. Individuals who file for bankruptcy protection are required to attend a meeting of creditors, which is held about one month after the filing of the bankruptcy petition. At the meeting, the creditors may ask questions about the debtor’s financial affairs and whether the debtor is able to repay his or her debts. The debtor is also required to attend a court hearing, which is held about two months after the filing of the bankruptcy petition.

Discharge of bankruptcy

A discharge releases the debtor from personal liability for most debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. A creditor holding a discharged debt can no longer try to collect it from the debtor or take any other action against the debtor to collect the debt, with a few limited exceptions. If you have questions about whether a particular debt is discharged, you should consult an attorney.

Re-establishing credit after bankruptcy

It will take time to re-establish credit after a bankruptcy. Get help from a non-profit consumer credit counseling agency or contact your localBetter Business Bureau. Here are some other things you can do:

  • Obtain a secured credit card from a bank or credit union.
  • Get a co-signer for a loan.
  • Pay all bills on time, including utility bills and rent payments.
  • Build a history of saving by saving regularly in a savings account or getting involved in direct deposit at work.
Bryan Robinson

Bryan Robinson
Writer and editor

Bryan Robinson is a finance writer with expertise in lending and their interest rates, fees, contracts and more.
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