Bankruptcy
A federal court proceeding in which a debtor who owes more than his or her assets can relieve the debts by transferring the assets to a trustee.
Chapter 7, officially called Liquidation, is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects and sells the non-exempt property of the debtor and distributes the proceeds to the creditors. Also referred to as "no-asset cases."
Chapter 11, officially called Reorganization, is ordinarily used by businesses that desire to continue operating and repay creditors concurrently through a court-approved plan of reorganization.
Chapter 13, officially called Adjustment of Debts of an Individual with Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to Chapter 7 because it enables the debtor to keep a valuable asset, such as a house or land. It allows the debtor to adhere to a plan to repay creditors over time, usually three to five years.
