Bankruptcy is a legal process by which certain debts are forgiven while also allowing creditors the opportunity to obtain repayment based on the available assets of a business or individual. Upon the successful completion of a bankruptcy, a debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
As opposed to an Assignment for the Benefit of Creditors, all bankruptcies are handled on a Federal level. A bankruptcy judge oversees the case and the case may be handled by a trustee, which represents the debtor.
Chapter 11 “reorganization” and Chapter 7 “liquidation” are two commonly used forms of bankruptcy under the Bankruptcy Code.
Chapter 11 "Reorganizations"
Usually utilized by corporations, partnerships, Limited Liability Partnerships, or high net worth individuals
Debts are restructured to create an achievable repayment plan
Chapter 7 "Liquidations"
Often used by individuals and corporations
Debts are discharged subject to the filer’s eligibility and the type of debt