What is Bankruptcy? Easy Explanation

ByVladana Donevski
June 10,2022

When sifting through information on bankruptcy, people tend to consider it a horrifying and lengthy legal process that can leave them in permanent financial ruin from which they can never fully recover. 

They may also assume that declaring bankruptcy will act as a magical off-switch and bring financial relief to anyone on the road to financial disaster by eliminating all of their debts. 

Neither of these assumptions is necessarily true, as the definition of bankruptcy simply involves legally declaring that you can no longer repay your debts. 

This article will seek to dispel these myths by providing information to ultimately answer the question: what is bankruptcy?

Bankruptcy Explained

Bankruptcy is a legal action whereby a person or a company can legally declare that they can no longer repay their debts in front of a bankruptcy court. By doing so, they may be granted relief by being discharged from bankruptcy. 

In the United States, bankruptcy proceedings are governed by federal law under six specific chapters of the US Bankruptcy Code. Claiming bankruptcy is achieved by filing under a specific bankruptcy chapter. However, only four are meant for individuals and businesses out of six chapters, as Chapter 9 deals with municipalities, and Chapter 15 is used in foreign cases. Our focus will be on chapters 7, 11, 12, and 13. 

These four different bankruptcy types are categorized based on the parties to the bankruptcy: whether they are an individual or company and the type of legal action or relief sought. Bankruptcy proceedings are achieved through two types of legal action: liquidation and reorganization. 

Liquidation happens when you file for bankruptcy, and your assets are sold and the proceeds distributed to creditors to repay debts. Filing for Chapter 7 bankruptcy, which is the most common filing, leads to the liquidation of your assets. However, claiming bankruptcy is not limited to declaring that you can’t pay your debts and then asking the court to sell your assets to pay the creditors back. 

Filing for bankruptcy can also mean seeking assistance from the court in reorganizing your property to allow you to pay off individual or company debts. 

Reorganization bankruptcy filings are different from liquidation filings because, in most circumstances, they allow individuals and companies to keep their property. 

The different bankruptcy types and their legal implications are summarized below:

  • Chapter 7 - Personal or liquidation bankruptcy, best for individuals and businesses
  • Chapter 11 - Business or large reorganization bankruptcy
  • Chapter 12 - Debt relief for family farmers and fishermen
  • Chapter 13 - Wage earner’s plan, best for individual income earners

Millions of people file for bankruptcy each year. The purpose of filing for bankruptcy and the end goal of any related proceeding is to be discharged from bankruptcy.

Common reasons for filing for bankruptcy are large medical bills, unemployment, loss of a family member, natural disaster, or business failure. 

What Happens if I Declare Bankruptcy: Individual Bankruptcy Explained

Filing for bankruptcy involves submitting a bankruptcy petition to the bankruptcy court clerk. The court may liquidate or restructure some of your property depending on the type of bankruptcy you’ve claimed. The discharge will ensure that creditors will not chase that debt again in a few years if you do not have sufficient assets to cover your debts.

Chapter 7 bankruptcy, for example, will allow the court to gather and sell your assets to pay your creditors and create relief by preventing them from taking further action to collect debts, such as harassing you or pursuing legal action against you.

In case of any bankruptcy filing, creditors must stop all action, including legal action to recover the debt and broad measures such as debt collection calls, letters, and personal contact. 

Your bankruptcy petition must disclose and outline all your financial and personal information, including a detailed list of all assets and liabilities, a list of creditors and the amounts owed to each party, and any income statements and tax records, including the latest tax returns.

It’s important to note that filing and administrative court fees are involved. Depending on your circumstances, the court may waive filing fees or require you to pay the fees in installments. 

What Happens After Filing for Bankruptcy?

The court assigns a bankruptcy trustee to meet with you to evaluate your financial situation and arrange for the collection of your assets. The trustee then sells non-exempt assets and redistributes the proceeds to your creditors.

The total length of bankruptcy proceedings can average between three to six months. Upon completing the case, you will be discharged from your debts. 

Being discharged from bankruptcy means that most remaining debts are fully forgiven. This includes almost all types of unsecured debts:

  • Credit card debt
  • Unsecured loans
  • Personal loans
  • Medical bills
  • Utility bills

As well as some secured debts such as:

  • Home mortgages
  • Auto loans
  • Tax liens 

When dealing with secured debts, the ones backed by mortgage or collateral, you’ll usually have a choice to make. You can allow creditors to repossess the property that secures the debt, continue to make payments to your creditor, or pay a sum equal to the collateral’s replacement value. 

Can All Debts Be Forgiven? 

Not all debts will be discharged or forgiven after declaring bankruptcy. Certain types of debts will remain:

  • Student loans
  • Court fees 
  • Child support 
  • Spousal maintenance/spousal support payments 
  • Obligations arising due to fraud 
  • Obligations arising related to personal injury claims 
  • Government fines and federal, state, and local taxes

Who Can Claim Chapter 7 Bankruptcy? 

Chapter 7 bankruptcy is the most common claim for individuals. However, claiming bankruptcy this way may not be available to all. There is a presumption of abuse in place, meaning that you must pass the means test before filing. This test is compulsory and ensures the bankruptcy laws are not abused, and court resources are not wasted. 

The means test prevents high-income earners from qualifying for Chapter 7. To pass the means test:

  1. Before claiming, your household income must be below your state’s median income for six months.
  2. You must carefully gather a list of all your expenses and divide them into allowable and non-allowable expenses. 

Your non-allowable expenses are expenses that could be put towards paying off any debts. The remaining expenses and any of your disposable income must be low enough to qualify for filing. 

A bankruptcy lawyer can assist you with going through your expenses and determining whether filing under Chapter 7 is the right course of action for you. Access to legal representation can be costly, but you can explore alternatives with our guide to the best online legal services.

Petitioning To Keep Your Property in Bankruptcy Proceedings

When declaring bankruptcy, you can petition to keep some of your property. This includes the furniture in your home, your clothes, and in some instances, your house and personal vehicle. What you get to keep when filing for bankruptcy could depend on the state you live in. 

In the US, bankruptcy filings are governed by federal law, but the personal bankruptcy law on the excluded property varies from state to state. Therefore, the types of property you may get to keep will vary depending on where you live.  

Bankruptcy lawyers are generally employed to assist you in successfully negotiating to keep your property. There is no hard and fast rule on what you will get to keep, as it depends on your circumstances. 

Chapter 7 and Student Loans

Going through the bankruptcy process to relieve yourself from repaying student loans might not be the best idea, as bankruptcy won’t necessarily protect you from this obligation. 

Student debt is considered unsecured debt and will not be automatically discharged by the court. Instead, you’ll need to commence additional legal proceedings known as adversary proceedings and successfully establish that the continuation of student loan repayments will cause you undue hardship. 

The student loan provider may oppose your claim, and you will need to prove it according to legal standards set by the federal court. 

Other Types of Bankruptcies: Chapters 11, 12, and 13 Explained 

Bankruptcy chapters 11, 12, and 13 do not involve liquidation. Some companies and individuals may wish to restructure their finances to pay off their debts over the long term or decide on a different approach to bankruptcy.

Chapter 11 of the Bankruptcy Code allows companies and business partnerships to continue their operations and keep their property by asking them to create and carry out the terms of a formal plan to pay off their debts. This claim is commonly referred to as company bankruptcy, and it can force companies to completely restructure their operations. 

Restructuring is usually achieved by encouraging leadership changes, closure of facilities, and the renegotiation of debts. The main benefit is that the company can avoid liquidating its assets in the short term and continue operations. 

Chapter 13 of the Bankruptcy Code is also called a wage earners plan. It allows individuals to reorganize their debt through a formal debt repayment plan based on their income for the last three to five years. 

Chapter 13 filing is limited to wage earners, allowing them to keep their property. Individuals must have a regular income and are expected to repay as much debt as possible through regular monthly installments. 

Lastly, Chapter 12 of the Bankruptcy Code is similar to Chapter 13, except it’s only available to family farmers and fishers with regular annual income. 

Final Thoughts

Bankruptcy may seem like a scary word, but it doesn’t have to be. By understanding the basics of bankruptcy and what it can do for you, you’ll be able to decide whether or not this is the right step for yourself or your business. If you’re feeling overwhelmed by debt and don’t see any other way out, bankruptcy could be the solution. 

Personal bankruptcy filings may remain on your credit history report for 10 years and directly impact your ability to receive approval for future loans. Thankfully, there are alternative business loans for bad credit providers available.

Bankruptcy can provide a fresh start, but choosing the right chapter is important. If you are considering bankruptcy, it’s best to consult with an experienced attorney who can guide you through the process and protect your rights.

FAQ
Do you need a lawyer to file for bankruptcy?

You don’t necessarily need a bankruptcy lawyer to file for bankruptcy, although it’s strongly recommended. A good lawyer can assist you with investigating your claim and compiling your documents to ensure that you are filing under the correct chapter of bankruptcy and that your claim passes the means test. 

They can also assist you with applying for property exemptions, which will help determine whether you get to keep your home and car after filing and help with additional proceedings if you are seeking to discharge your student loans. 

Can you recover from bankruptcy?

Bankruptcy is a complex process, but it’s possible to recover from it. By rebuilding your credit and creating a solid financial plan, you can eventually get back on your feet. If you’re feeling overwhelmed, don’t hesitate to reach out for help, as plenty of resources are available. You can rebuild your life after bankruptcy and be in a much better financial position with some time and effort.

What are the advantages of filing for bankruptcy?

Getting a bankruptcy discharge is the main advantage of filing for bankruptcy. Upon discharge, all creditors must immediately stop debt collection actions such as personal collection calls and threatening acts such as disconnecting home utilities.

What is bankruptcy?

Bankruptcy is a legal status of an individual or a business that cannot repay the debts incurred to creditors. A bankruptcy filing can offer debt relief and allow you to start fresh financially. There are several types of bankruptcies, each with its benefits and drawbacks. If you are considering bankruptcy, choose the right chapter for you.

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By following this guide, you will be well on your way to using purchase orders effectively.
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It’s hard to imagine the modern world without barcodes. They are on almost every product we buy, from food to clothes to electronics. We tend to take it for granted that this technology will be there to make our lives easier.  But have you ever wondered about the history of barcode technology and barcode scanners? Have you asked yourself: When was the barcode invented, and how did it become so ubiquitous? In this article, we’ll answer those questions and take a brief look at the history of this fascinating technology. What Is a Barcode? Let’s start by explaining what a barcode is. A barcode (often spelled as two words, ‘bar code’) is a machine-readable representation of data typically used to track inventory or products. Barcodes can be found on almost any consumer product today, from food items in the grocery store to books at the library.  Barcodes work by encoding data in a series of parallel lines of varying widths. 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This allowed companies to add branding and design elements to their codes more freely. Thanks to those who invented the barcode, we can now use QR technology to store website URLs, contact information, and small amounts of text. It can also be used to trigger actions, such as opening a URL in your browser or adding a contact to your address book.  The Future of Barcodes As barcodes continue to evolve, we can expect to see even more uses for them in our everyday lives. Now that we know the answer to the “How long have barcodes been around?” question, we can only imagine what the future holds for this technology.  With the advent of cloud-based inventory management software, barcodes are becoming even more important for managing products and tracking inventory in real time, no matter where you are.  We are also likely to see more uses for QR codes as they become more widely adopted. So, whether you’re using a barcode to keep track of your inventory or scanning a QR code to get information about a product, there's no doubt that these little symbols are here to stay. Final Thoughts A combination of barcodes and barcode scanners is critical to managing inventory for businesses of all sizes, especially in the grocery industry. With a long history that dates back to 1948, barcodes have come a long way, and they continue to evolve as our needs change. Laser technology made it possible to read barcodes much faster, and the QR code was introduced in the 1990s to store even more information. Today, barcodes are used in many industries, such as health care, manufacturing, and transportation. We hope you won’t take them for granted the next time you see them. In this article, we explored who created the barcode and how its history brought it to its important place in business today.
By Danica Djokic · November 22,2022
Do you ever wonder how those little black-on-white lines can hold so much information? Or how do barcodes work, and why are they so important to businesses? In this article, we will explore the world of barcodes and learn how these simple markings can do so much. Stay tuned for an in-depth look at one of the essential pieces of technology in the modern world. What Is a Barcode? A barcode is a machine-readable code in the form of numbers and parallel lines printed on product packaging. Barcodes were first developed in the 1970s from an earlier idea based on Morse code. They have since become an essential tool for businesses of all sizes. Barcodes can be printed on labels or directly onto products and are read by scanners that are connected to a computer system. Barcodes are used extensively in retail and have helped streamline the checkout process. In addition, barcode technology can be used to track inventory levels and product movement throughout the supply chain. 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Two-dimensional barcodes are less common but are becoming more popular due to their ability to store more information. These barcodes are composed of a series of dots or squares that can be read in two dimensions. Now, let’s take a closer look at the different barcode types. UPC The most common type of 1D barcode is the Universal Product Code (UPC). UPC barcodes are used extensively in the retail industry and can be found on nearly every product sold in a retail store.  The universal product code consists of 12 digits divided into two parts: The first six are the manufacturer’s identifier, and the last six are the product’s identifier. The UPC barcode is printed on every product sold in stores and is a vital part of the retail industry. Thanks to the UPC, retailers can efficiently track inventory and sales and ensure that customers get the right products. EAN Code The European Article Number (EAN) is another 1D barcode example used extensively in Europe. EANs are very similar to UPCs but have a few key differences.  EANs are composed of eight or 13 numbers depending on the product size. If the product is small, such as a book, it will have an 8-digit EAN. If the product is larger, such as a piece of furniture, it will have a 13-digit EAN. These numbers combine a country code, company code, and article number, while the last digit represents the check digit. EANs are often used on products sold internationally, as scanners in any country can read them. This makes them a vital part of the global supply chain. Data Matrix Code Data Matrix codes are 2D barcodes that can encode a large amount of data in a small space. They are made up of black and white squares that form a big square or rectangle and are used in industries where tracking and traceability are critical. These codes have a maximum encoding capacity of 3,116 numerical characters and 2,335 alphabetic characters. Each Data Matrix has its own perimeter finder and timing pattern, and they are made up of square or rectangular blocks of black and white cells. Data Matrix codes may store both large and small symbols. A barcode scanner can more easily read the code if there is a blank space around its perimeter. PDF417 Code PDF417 is a type of 2D barcode used to store information. The name stands for Portable Data File 417. PDF417 codes are used in various contexts, including but not limited to driver’s licenses, passports, and other identification documents.  The information stored in a PDF417 code can include text, numbers, and other data. These codes are read by scanning them with a barcode reader. The reader decodes the information, displays it on a screen, or prints it out.  PDF417 codes are also used in some financial transactions, such as mobile payments. In these cases, the code typically represents a unique identifier for the transaction. PDF417 codes have been used since the early 1990s and are now one of the most common barcode types. QR Code QR codes are becoming increasingly popular, especially as a way of sharing information or accessing content quickly and easily. But what exactly is a QR code? Simply put, a QR code is a two-dimensional barcode that can be read by a smartphone or other devices with a camera.  When scanned, the QR code will direct the device to a specific website or online content. QR codes can be used for various purposes, including sharing contact information, providing directions, or linking to a video or social media account.  Businesses have also begun using QR codes to offer customers special deals or promotions. While QR codes are most commonly used with phones, they can also be scanned with laptops and tablets. So, the next time you see a QR code, go ahead and give it a try. Benefits of Using Barcodes Barcodes have become essential to modern life, appearing on everything from groceries to library books. While they may seem like a simple way to handle inventory tracking, barcodes offer businesses various financial benefits. Here are some of the key benefits of using barcode systems: Improved accuracy: Barcodes can be read quickly and accurately, which reduces the chances of human error. This is especially important for businesses that need to track a large number of items. Reduced costs: Using barcodes can help businesses save money on labor costs associated with inventory management. Barcodes can also be used to automate the ordering process, which can lead to further cost savings. So if you’re unsure how to use a barcode system, consider hiring a professional to help get you started. Faster transactions: Barcodes can be read quickly, which helps speed up transactions. This is especially beneficial for businesses that experience high volumes of traffic, such as supermarkets and department stores. Improved customer service: Barcodes can help businesses keep track of sales data and customer purchase history. This information can be used to improve marketing efforts and customize the shopping experience for individual customers. Improved security: Barcodes can be used to track products and prevent theft. This is especially important for businesses that sell high-value items or handle sensitive information. As you can see, barcodes offer a variety of financial benefits for businesses, large and small. How Does a Barcode Scanner Work? A barcode scanner is a device that can read and interpret barcodes. It encodes the data from the barcode into a form that a computer can read. The computer then uses this data to look up information about the product, such as the price, in a database. Barcode scanners come in various shapes and sizes, but they all work using the same basic principle. So, how are barcodes read? A barcode scanner contains a light source, a photosensor, and an electronic decoder.  The light source is used to illuminate the barcode. The photosensor is used to detect the reflected light from the barcode. The electronic decoder is used to interpret the data encoded in the barcode. Barcode scanners can be handheld or fixed. Handheld barcode scanners are portable devices that can be held in one hand while scanning barcodes. Fixed barcode scanners are mounted on stands or other surfaces and are used to scan barcodes placed within the scanner’s range. Barcode scanners are commonly used in retail settings for pricing and inventory control. However, barcode scanners can also be used for other purposes, such as tracking assets or collecting data. Final Thoughts Barcodes are essential to many businesses, helping track inventory and product movement throughout the supply chain. By understanding how they work, you can ensure you’re making the most out of them. There are different barcode types, so choose the one that best suits your needs.
By Nikolina Cveticanin · November 21,2022

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