Filing Bankruptcy
Bankruptcy is a process set up by the federal bankruptcy laws to provide individuals and businesses a "fresh start" when they are unable to pay their bills. The process of filing bankruptcy and going through bankruptcy is administered under federal bankruptcy rules by a special bankruptcy judge who helps the business and its creditors work through the issues involved. Bankruptcy courts are set up in judicial districts across the U.S.
In a 1934 decision, the U.S. Supreme Court set out the goal of bankruptcy:
Filing bankruptcy gives the debtor
a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
The release from debt is called "discharge," in which the bankruptcy court determines the debtor's eligibility and sets up a process for relieving the debtor of the requirement to pay certain debts and describing what creditors must do to collect from the debtor.
In liquidation bankruptcy proceedings, the secured creditors (usually the bank) are paid off first, with the secured assets being sold to satisfy the liens. Then unsecured loans from creditors are paid from the sale of other assets. Finally, if there is anything left after all creditors have been paid, stockholders might receive a return on their investments.
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