When you hear the word "bankruptcy," you most likely think of a hapless individual or business that has run out of money and who has decided to seek protection in the mysterious confines of a federal bankruptcy court.
In fact, the term "bankruptcy" contemplates several kinds of financial relief for debtors. The most common type of proceeding is known as a Chapter 7 bankruptcy.
Called Chapter 7 because its rules are set out in Chapter 7 of the United States Bankruptcy Code, a Chapter 7 allows an individual or business to completely eliminate many kinds of debt – credit card bills, medical debt, and other unsecured claims are the most common types of debt eliminated. In addition Chapter 7 allows debtors to cancel contracts and leases for the purpose of obtaining a fresh start.
Alas, there are no free lunches in life and Chapter 7 bankruptcy has its downside. It will severely damage a filer's credit profile and many debtors will have to give up to their Chapter 7 trustee any cash in the bank or assets that can easily be converted to cash.Powered by Sidelines