What is bankruptcy?

Bankruptcy is a legal process that a person or business can use when they owe more money than they can pay. It is a form of debt relief that can offer individuals or businesses a fresh start by allowing them to get rid of or reorganize their debt. In Washington State, a person can file for bankruptcy under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 is known as a liquidation bankruptcy, which means that most of the debtor’s assets are sold in order to pay creditors. Chapter 13 is known as a reorganization bankruptcy, which allows the debtor to keep their assets and instead sets up a payment plan with their creditors. In either type of bankruptcy, the debtor must make an accurate list of their assets and debts in order to file. The debt is then discharged and the creditors are prevented from collecting on the debt. Any debts not discharged by the bankruptcy remain the responsibility of the debtor. Additionally, certain debts such as student loans and child support payments are not always eligible for discharge. The filing of bankruptcy also remains on the debtor’s credit report for up to ten years. Bankruptcy is a serious decision, and those considering it should speak with a qualified attorney for advice specific to their situation.

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