What is Bankruptcy?

Bankruptcy is the legal process of liquidating an insolvent debtor's assets, distributing the proceeds to creditors, and relieving the debtor of any further liability. Bankruptcy is designed to give the debtor a fresh start unencumbered by old debts, as well as to fairly settle creditor claims through an equitable distribution to them of the debtor's remaining assets.

The bankruptcy process can be initiated by the debtor or by a petition filed by the debtor's creditors, which are called voluntary and involuntary bankruptcies, respectively. Under the federal bankruptcy code, Chapter 7 addresses the complete liquidation of a debtor's assets, while Chapter 11 deals with the reorganization of the debtor business.

Advantages of Bankruptcy

There are several advantages to bankruptcy, of which the main one is giving the bankrupt person or business a fresh start, unencumbered by financial obligations. Further, they are no longer being harassed by collection agents, who are required to stop these activities once the bankruptcy process begins. Also, in a personal bankruptcy, it may be possible to retain some personal assets to which creditors are not given access.