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Bankruptcy is a legal procedure that allows a person or business that is unable to pay its debts to have those debts forgiven or reformed. By enabling the restructuring or liquidation of insolvent companies, bankruptcy serves to both provide a fair and orderly resolution for people or organizations who are unable to pay their debts and to advance economic efficiency and stability.
The Bankruptcy Code, which describes the procedures for declaring bankruptcy, the several types of bankruptcy that are possible, and the rights and obligations of debtors, creditors, and other parties engaged in the process, governs the bankruptcy process in the United States.
Bankruptcy can take several different forms, including Chapter 7, Chapter 11, and Chapter 13. The most popular bankruptcy option is Chapter 7, sometimes referred to as a "liquidation" bankruptcy and intended for people or businesses with few assets and little income. Chapter 11 bankruptcy permits the rearrangement of debt and the continuation of business activities. It is intended for businesses and people with more complicated financial situations. Chapter 13 bankruptcy is intended for those with steady incomes and enables them to repay their debts over a three- to five-year period.
