Bankruptcy is a legal process that allows individuals or businesses that are unable to repay their debts to seek relief from some or all of their debts. In the United States, bankruptcy proceedings are carried out in federal courts, according to the rules outlined in the U.S. Bankruptcy Code. Bankruptcy can be seen as a "last resort" option for those overwhelmed by debts, offering a way out of financial distress. However, it also carries significant consequences, including a long-lasting impact on an individual's credit score, and therefore should not be undertaken lightly. There are several types of bankruptcy, each referred to by its chapter in the U.S. Bankruptcy Code: 1. **Chapter 7** is the most common type of bankruptcy and is available to individuals and businesses. In a Chapter 7 bankruptcy, the debtor's non-exempt assets (if any) are liquidated or sold off to repay creditors. At the end of the process, many of the debtor's debts are discharged, or eliminated, giving the debtor a "fresh start." However, some types of debts, like student loans and child support, cannot typically be discharged in bankruptcy. 2. **Chapter 11** is typically used by businesses seeking to restructure their debts. In a Chapter 11 bankruptcy, the debtor typically keeps its assets and continues to operate the business while developing a plan to repay creditors over time. This type of bankruptcy allows the business to negotiate with creditors and other stakeholders to reduce its debt load and reorganize its operations to become profitable again. 3. **Chapter 13** is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. In a Chapter 13 bankruptcy, the debtor keeps all of their property (whether it is exempt or not) and proposes a plan to repay their debts over a three to five-year period. Bankruptcy has significant financial and legal consequences. It can severely impact a debtor's credit rating and make it more difficult to obtain credit in the future. It can also result in the loss of property and assets. However, in some circumstances, it can provide a vital lifeline for those overwhelmed by unmanageable debt. From an [economic](https://doctorparadox.net/category/economics/) and political perspective, bankruptcy laws reflect a balance between, on one hand, allowing creditors to collect what they are owed and, on the other hand, not forcing debtors into endless cycles of debt. These laws have been shaped over time by changing ideas about debt, credit, and the social responsibilities of debtors and creditors.