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Bankruptcy is a federal court process. It is designed to help consumers and businesses eliminate debt or repay debts under the protection of the bankruptcy court. There are two categories of bankruptcy, "liquidation" or "reorganization":
- Liquidation bankruptcy (or Chapter 7) - a consumer or business asks the court to discharge the debts owed (some debts cannot be discharged). In exchange, the business's assets or the consumer's property is sold (liquidated) and the proceeds are used to pay off the creditors.
- Reorganization bankruptcy (chapter 13) - involves filing a plan with the bankruptcy court suggesting how you will repay your debt. Some debts must be repaid in full while others require only a percentage or nothing at all.
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