This is the second entry in BeenVerified’s legal term library designed to help you better understand public record information, criminal records and related terminology. The information in this article is provided for informational purposes only and does not constitute legal advice.
Most people think they are familiar with the term “bankruptcy” and often equate it with being broke to the point of not being able to pay bills, debts and other financial obligations. However, are you familiar with some of the nuances of this tricky situation and how one can potentially qualify for it? Do you know the difference between a Chapter 7 and Chapter 13 bankruptcy or the difference between a bankrupt individual and business? Read on to find out more.
Bankruptcy is a proceeding involving a person or business that is unable to repay outstanding debts, according to Investopedia. The function of a Bankruptcy has specific legal implications beyond just the state of your piggy bank.bankruptcy is to allow a debtor a “fresh start” by discharging debts that simply can’t be paid while allowing creditors some ability to reclaim assets that are available to them.
There are a number of different types of bankruptcies with different procedures associated with them. Investopedia goes on to note that:
Chapter 7 bankruptcy involves the total liquidation of assets and is the closest to a “fresh start” approach. This is the most common type of personal bankruptcy.
Chapter 11 bankruptcy is used in the case of company or (rarely) individual “reorganizations.” Large corporations that have gone kaput most often use this type of bankruptcy.
Chapter 13 bankruptcy involves lowered monthly payments typically in exchange for a reduction in principle owed. Some people select this method if their overall debt situation could be solved with extra time.
Debts that usually cannot be discharged in bankruptcy proceedings often include back taxes, student loans, criminal judgments and child support and alimony.
Keep in mind that bankruptcies have potentially major consequences on personal finances. Chapter 7 bankruptcies remain on a credit report for 10 years, while Chapter 13 remains for seven years, according to Debt.org.
Additionally, once a bankruptcy case has been processed, it will become part of the public record and is accessible by anyone with details of the case in question.
Bankruptcies from notable individuals include Mike Tyson, Donald Trump and Larry King. Notable businesses that have declared bankruptcy include American Airlines, Enron and Lehman Brothers.