What is bankruptcy?

Bankruptcy is a legal term that is used to describe the inability of a debtor to repay their creditors. In Florida, bankruptcy is governed by federal law and there are two main types of bankruptcy that can be filed: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is referred to as “liquidation bankruptcy” because it allows the debtor to discharge or eliminate their debts entirely. This type of bankruptcy is ideal for individuals who have very few assets and no ability to pay off their creditors. Under Chapter 7, a court appointed trustee liquidates the debtor’s assets and uses the proceeds to pay off the creditors. Chapter 13 bankruptcy is referred to as “reorganization bankruptcy.” This type of bankruptcy is designed to help individuals who have a regular income and some ability to pay off their debts. It allows the debtor to set up a repayment plan with their creditors and allows the debtor to keep some of their assets. The repayment plan must be approved by the court and the debtor must make regular payments to the trustee, who then distributes the payments to the creditors. No matter which type of bankruptcy is filed, a debtor will have to attend credit counseling sessions in order to gain a better understanding of how to manage their finances. Bankruptcy can help a debtor get a fresh start by eliminating their debt, but it can be a long and difficult process.

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