Bankruptcy can be defined as the termination of a person’s legal status and all legal rights by which that person previously possessed. Bankruptcy can be either voluntary or involuntary. Voluntary bankruptcy is a process through which certain individuals or other entities that are unable to pay their debts to lenders can seek relief by means of a court order. In most jurisdictions, bankruptcy is commonly imposed by a judge upon the applicant after an investigation and hearing.

Under normal circumstances; the bankruptcy generally terminates the right of the debtor to discharge their obligations under a contract. However, when an individual files for chapter 7 bankruptcy, there may be no immediate termination of contractual debts. A borrower can, however, sell any assets that they have that are exempt from bankruptcy, such as insurance policies. Also, they may not file for a new bankruptcy lawsuit against another party. Chapter 13 bankruptcy generally terminates all other debts, including private student loans.

Bankruptcy can present real challenges for debtors; In order to regain a fresh start at building a new life, debtors must first repay all debts owed to third-party companies and to themselves. A fresh start often means starting from scratch. Unfortunately, when debtors fail to meet their monthly obligations, collection agencies come in to play. With the help of these debt collectors, creditors attempt to recover outstanding amounts. In the past, creditors resorted to harassing debtors, or taking them to court in attempts to obtain judgments against debtors.

With the advent of the bankruptcy statute in the 2021; these tactics were less popular and there were far fewer attempts by creditors to force debtors into court. Instead, with the bankruptcy filing, the burden of proof was shifted to the debtor. The court ordered the debtor to prove that he or she had no resources that could be used to pay back the debt. If the debt cannot be demonstrated to be “paid”, then the court considers the debt to be “free and clear”. (The word “free” is a relative term. The exact definition will vary depending on your state and the laws governing the bankruptcy.)

  • In recent years, however, as more people have been able to file for bankruptcy, there have been efforts by creditors to regain some of the money that has been lost due to the bankruptcy filing.
  • Recently, there have been changes to the bankruptcy law that may allow some creditors to recover up to an additional percentage of the outstanding debt.
  • There are also new statutes that require a mandatory two-year period in which a debtor has declared bankruptcy to be followed by an additional two years during which the new bankruptcy law does not apply.
  • These changes may create a greater opportunity for debtors and their creditors to work out a financial solution.

Some people think that it is better to file a personal bankruptcy law suit against someone; who has not repaid an account, but this is not the most advisable way of handling the matter. The reasons why filing a suit against someone who has filed for bankruptcy is better than just ignoring the fact is that it is possible to work out an arrangement with the individual to ensure they pay back what is owed to you. In the vast majority of cases, people who are filing for Chapter Seven will have the ability to pay back what is owed to them over a period of time. In fact, the vast majority of people who file for bankruptcy protection will be able to get out of debt within five years or less.