WHAT IS BANKRUPTCY?
Bankruptcy is a legal proceeding in federal bankruptcy court, by which a person who has more debts than he or she can pay seeks relief from those debts. The right to file a bankruptcy exists under the law, and this law was designed mainly to take care of serious problems with debts and to allow a fresh financial start.
The most common type of bankruptcy is straight bankruptcy. You may also hear it referred to as a Chapter 7 or liquidation proceeding. A person who files for such a bankruptcy is legally referred to as a debtor; the former designation of “bankrupt” is no longer used. A straight bankruptcy proceeding includes a court administered sale of any of the debtor’s property that does not fall under the exemption described below, with distribution of the sale proceeds to the creditors (persons whom the debtor owes). The result of a successful bankruptcy proceeding is a discharge in bankruptcy, which releases the debtor from payment of affected debts. Most of the information in this pamphlet deals with a straight bankruptcy proceeding.