What is bankruptcy and how does it work?

Bankruptcy is a legal process that allows individuals or businesses to get a fresh financial start when they are unable to repay debts. It is filed in a court and involves the debtor's assets being evaluated and distributed among creditors to repay the outstanding debts. There are different types of bankruptcies available, primarily Chapter 7 and Chapter 13. Chapter 7 bankruptcy involves the liquidation of assets to pay off debts, while Chapter 13 bankruptcy creates a repayment plan to settle debts over a period of three to five years. Bankruptcy provides individuals or businesses with temporary protection from creditor actions, such as debt collection or foreclosure. However, it also comes with long-term consequences, including a negative impact on credit scores and limited access to further credit. Ultimately, bankruptcy aims to give individuals or businesses a fresh financial start and the opportunity to regain stability.