A bankruptcy is a proceeding in a federal court in which an insolvent debtor's assets are liquidated and the debtor is relieved of further liability.
There are two types of bankruptcy for which consumers commonly file:
- Chapter 7 - Liquidation: This is faster to complete, and gives the debtor a financial fresh start without the years of sacrifice. However, most personal property of any value is forfeited.
- Chapter 13 - Reorganization: This allows an individual to begin debt repayment without forfeiting property. It requires that the debtor maintain a source of income and adhere to a payment schedule set forth by the court.