Bankruptcy seems like a scary concept. It certainly carries a heavy stigma within society. But is it the big, bad monster it seems? The answer may surprise you.
In the past, when a borrower could not pay his debts, he and his family had everything stripped away and could even be placed into servitude. As societies evolved, it became clear that placing people into slavery for their inability to pay would not inspire economic growth. What could a nation do to encourage people to continue participating in the economic market while dealing with unpaid debts? The United States found a unique answer… bankruptcy.
Bankruptcy is a process by which individuals, families, and businesses can eliminate or repay some or all of their debts. This process is guided and protected by the federal bankruptcy court. Bankruptcy acts as a means for individuals and businesses to not only reduce or wipe out past debts, but also restructure their finances so that they can start again with a “clean slate”, all while making more financially sound decisions in the future. For this reason, bankruptcy is also known as “debt restructuring”. There are two basic types of bankruptcy: “liquidation” and “reorganization.” For individuals, “liquidation” is considered Chapter 7 Bankruptcy while “reorganization” is Chapter 13 (of Title 11 of the United States Code).