What does Bankruptcy mean?
Bankruptcy is a procedure in which a debtor’s assets will be liquidated in a federal court. In the proceeding the debtor will be relieved of any further liability. The proceeding follows the Bankruptcy Reform Act in which Chapter 7 refers to liquidation. Chapter 11 of the Act is referring to reorganization. In bankruptcy, businesses or consumers seek legal help when they can pay their debt no longer. There are different bankruptcy types.
In some of these types the accumulated debts are discharged, other types are somewhat less simple, debts are restructured and repaid. This entire operation is supervised by a bankruptcy court. No matter what kind of bankruptcy the consumer or business has filed for, this has a negative effect on their ability to receive loans in the future. Declaring bankruptcy will decrease ones credit score.
A corporation, person or firm that is bankrupt, has been declared insolvent trough a court proceeding and is relieved from paying all the accumulated debts after surrendering all of the assets to a trustee appointed by a court.