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What is bankruptcy? Here are the basics

Bankruptcy refers to a federal code of laws and rules designed to help provide a fresh start to individual or business debtors facing more debt than they can afford to pay.

Bankruptcy permits the debtor to work out a more affordable plan to repay some or all of the debt, or to have some or all of the debt erased or "discharged."

Both the "work-out" and debt discharge options are subject to strict rules and limitations, but bankruptcy gives debtors protections and benefits they would not otherwise have.

Most notably, bankruptcy may provide full or partial debt forgiveness and requires creditors to stop all collection efforts.

Bankruptcy law requires the debtor to make full disclosure of all assets, liabilities and other financial information.

The debtor must either surrender non-exempt assets (if any) for liquidation and distribution to creditors or formulate and follow through on a plan of reorganization and more manageable debt repayment.

Where they are adjudicated

Bankruptcy cases are adjudicated by the Bankruptcy Court, a federal court that is a unit of the U.S. District Court in your region. A bankruptcy case is commenced by the filing of a "bankruptcy petition," a formal request for relief under the bankruptcy laws.

The United States Trustee Program is a component of the Department of Justice. The U.S. Trustee supervises the administration of bankruptcy cases and reports to the court.

The Trustee's mission is to help promote the efficiency and protect the integrity of the bankruptcy system.

The U.S. Trustee monitors the conduct of all parties in bankruptcy cases, oversees related administrative functions, and acts to ensure compliance with applicable laws and procedures.

Dive Deeper: Bankruptcy: The full breakdown

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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