What is bankruptcy?

Bankruptcy is the inability to pay creditors.  There are multiple types of bankruptcy.  One, a person can file for him/herself, admitting he/she is in over his/her head.  The second is involuntary bankruptcy, in which a creditor can petition against someone who owes them an amount of money.  Although involuntary bankruptcy does occur, the majority of bankruptcy cases are voluntary.
While bankruptcy may seem like an easy way to get out of paying bills, it is really not such a good idea if at all avoidable.  Once bankruptcy is filed, the credit of the filer is ruined.  This means it will be difficult to get a loan for anything such as a car, house, etc.  In the U.S. bankruptcy is under federal jurisdiction, with individual states filling in the blanks.
There are six different types of bankruptcy in the U.S. covering several different types of situation.  Chapter 7 includes the basic liquidation for individuals and businesses, while Chapter 12 calls for rehabilitation for farmers and fisherman.  Chapter 15 focuses on ancillary and other international cases.  The chapters in between provide plans for individuals filing for bankruptcy who have a steady income (Chapter 13) and rehabilitation used primarily for business owners (Chapter 11), among other criteria.  The most common types of bankruptcy filed in the U.S. are Chapters 7 and 13, with Chapter 7 making up 65% of bankruptcy filings.
To better understand bankruptcy, take a look at what happens should someone file Chapter 7.  The individual must surrender all non-exempt items to a trustee, who then liquidates the items and uses the money to pay off debt.  Exempt items include an older car, household goods and clothing.  Many people possess only exempt items and therefore have to surrender nothing.  An individual is only allowed to file Chapter 7 once every eight years.
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