Legal Definitions - bankruptcy proceedings

A bankruptcy proceeding is a legal process that allows a person or business to get relief from their debts by following a court-approved procedure. This process involves making arrangements for the repayment of debts to creditors, and it ends with the debtor receiving a bankruptcy discharge.

There are two types of bankruptcy proceedings: liquidation and reorganization. Liquidation procedures, governed by Chapter 7, are used when a company becomes insolvent and can no longer pay its suppliers. Reorganization procedures are used to anticipate financial difficulties and allow for a company to reorganize before it's too late.

• Example 1: A small business owner files for bankruptcy after their business fails and they are unable to pay their debts. They go through a bankruptcy proceeding to make arrangements for the repayment of their debts and receive a bankruptcy discharge.
• Example 2: A largecorporation anticipates financial difficulties and files for bankruptcy to reorganize their business before it's too late. They go through a reorganization procedure to make necessary changes and avoid liquidation.

These examples illustrate how bankruptcy proceedings can be used in different situations to provide relief from debts and allow for a fresh start.