Bankruptcy is a legal proceeding used to relieve individuals or businesses of their debt burden by allowing them to reorganize or liquidate their assets to raise funds to pay creditors. Bankruptcy is governed by federal laws and rules outlined in U.S. Bankruptcy Code, and all bankruptcies are filed in federal court.

There are two main types of bankruptcy proceedings: Chapter 7 and Chapter 11. Chapter 7 is for individuals filing for personal bankruptcy, granting them debt relief (though not necessarily eliminating all of the debtor’s debt obligations). In Chapter 11 proceedings, businesses can submit petitions to reorganize their debt, enabling them to potentially pay creditors over time.

Though bankruptcy can provide debt relief and reorganization opportunities, it will remain on an individual’s or business’s credit reports for seven to ten years. During this period, they may have difficulty accessing new lines of credit, as many lenders will be hesitant to extend credit to an individual or business with a bankruptcy listing.

When individuals or businesses are unable to pay their creditors and their debts become unmanageable, bankruptcy can provide them an opportunity to regroup, reorganize, and get a fresh start. However, filing for bankruptcy involves many decisions that should only be taken in consultation with a qualified attorney. The penalties and remainders of bankruptcy on one’s credit record must also be carefully considered before making the decision to move forward.