A proceeding in a federal court in which a borrower who owes more than his or her assets, can relieve the debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower’s credit report for up to 10 years.
Bankruptcy is a federal legal process for debtors seeking to eliminate or restructure their debts.
The most common bankruptcies for consumers are Chapter 7, which allows the debtor to discharge debt by liquidating all unprotected assets, and Chapter 13, which allows debtors to keep their property and repay some or all of their debt over three to five years. At the end of that time, any remaining balances are discharged.
The U.S. Code: Title 11 lists six types of bankruptcy.
Not all debts can be cleared through bankruptcy. For example, federally-backed student loans, most tax debt, alimony and child support cannot be discharged through bankruptcy. Bankruptcy can’t prevent secured creditors (like mortgage lenders) from repossessing property if the borrower defaults.
Bankruptcy filings are public records and can do serious and long-lasting damage to credit scores.
