Bankruptcy

Bankruptcy is a legal process that allows individuals and businesses to get rid of their debt, so they can start fresh. In the United States, bankruptcy is governed by federal law and administered by federal courts in each state.

According to the meaning of bankruptcy, to be eligible for it, you must meet certain criteria and follow the rules of your state's bankruptcy laws.

There are three types of bankruptcies for business:

• Chapter 7 — liquidation. This is a straight-up bankruptcy and often referred to as «straight bankruptcy». The debtor loses all property (except for certain exempt items), but can get rid of debts at a discount.
• Chapter 11 — reorganization. This type of bankruptcy allows an individual or business entity to continue operating while they repay creditors over time through monthly payments or by selling off parts of their business, if necessary. If successful in negotiating with creditors, debts can be reduced by up to 50 percent under this type of protection from creditors' lawsuits and collection efforts, while also allowing you time to get back on your feet financially so that it will be easier for everyone involved when everything finally does get settled out later down the road.
• Chapter 13 — repayment plan. It could be useful if your income is low enough compared to how much debt you have. Chapter 7 can result in assets being taken away from you, but that won't happen with Chapter 13 (which allows some debts to remain).