What is a bankruptcy and how does it work?
The primary purpose of bankruptcy is to give a person, who is unable to repay their debts, a chance to start over financially. There are two (main) types of individual bankruptcy. Under Chapter 7, debtors are sometimes required to turn certain property that they owned when they filed their bankruptcy petition, over to a court trustee. This property is sold, and the proceeds are used to pay the creditors. Any remaining balance owed to the creditor is then discharged.
In a Chapter 13 bankruptcy people may keep their property, but must commit to a court ordered repayment plan of their debt. The repayment plans typically last three to five years and at the end of that time any balance remaining is discharged.
Anyone considering bankruptcy is required by law to receive pre-bankruptcy credit counseling.
Published Mar 11, 2008.