How Bankruptcies Work

If you are drowning in debt, you may be interested in knowing how bankruptcies work. While it may sound like a scary prospect, bankruptcy is a good opportunity to start over. Not only will it help you reorganize your debts, but you will get a clean slate to move forward. Often, it is also a good way for municipalities and companies to start over. Despite the stigma attached to bankruptcy, the process can be very beneficial.

Bankruptcy case

In a bankruptcy case, the court will create an “estate,” which will become the temporary owner of all the debtor’s property. This estate contains all legal rights to the debtor’s property, even those that are owned by another person. All nonexempt property will be distributed among the creditors. After the trustee is appointed, the creditors will have no further claim on the debtor’s property. The debtor’s property is seized and sold to pay creditors.


Bankruptcy is the best option if you are unable to pay your creditors. In a chapter 7 case, the court will liquidate your assets to meet your debts. Luckily, some assets are exempt. Most of them are, including your primary residence and any medical bills. The court will also discharge your debts if you can’t afford them. But, be sure to keep in mind that if you fail to pay your debts, your creditor can still seize your property.

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