How To Guide For: Understanding Bankruptcy --How Does It Work--Why Do Individuals And Businesses Fil

Following up to my previous post about secured and unsecured debt I wanted to discuss bankruptcy. Bankruptcy is a term for a federal court procedure that helps consumers and businesses get rid of their debts and repay their creditors. If the consumer or the business can prove that they are entitled to it, the bankruptcy court will protect them during their bankruptcy proceeding. Bankruptcies can be categorized into two types -- "liquidations" and "reorganizations." The most common types of bankruptcies for individuals and businesses is Chapter 7 and Chapter 13 proceedings. Chapter 7 bankruptcy means that if you own property, it could be taken and sold in the process of liquidation in order to pay back your debts. The benefit of this is that any unsecured debts (debts that are not guaranteed by collateral) will be wiped out. When an individual files Chapter 7 bankruptcy it is called consumer Chapter 7 bankruptcy. When a business files Chapter 7 bankruptcy it is called business Chapter 7 bankruptcy. Chapter 13 bankruptcy falls under the reorganization category which means that you will probably be able to keep your property, but you must submit and stick to a plan that will allow you to repay some or all of your debts within three to five years. Only people with a reliable source of income are allowed to file for Chapter 13 bankruptcy. So why do individuals and businesses file for bankruptcy. Some of the reasons why individuals file for bankruptcy are unemployment, large medical expenses, seriously overextended credit, and marital problems. When a publicly traded company files for bankruptcy lets say a reorganization for example

shareholders must vote to approve the company’s plan and the SEC must review the disclosure made to them to ensure it has all the necessary information. A public company’s reorganization plan may call for it to reform as a private company after it emerges from bankruptcy. For more information on bankruptcy, how it works and why individuals and businesses file for bankruptcy -- click on the pictures below.