When you are involved in a lawsuit, most likely it is for some type of deficiency judgment, which means that the court finds that you are not financially able to pay your claims. In many cases, the plaintiffs do not have enough money to pay their claims in full, so they file for bankruptcy. There are a number of different kinds of bankruptcy, but a majority of people file a Chapter 7 bankruptcy to discharge their debts.


A Chapter 7 bankruptcy is a last resort for many people who are involved in lawsuits. An individual Chapter 7 bankruptcy usually takes three to five years to go through federal bankruptcy court and typically costs much less than other forms of bankruptcy. The reason for this is that the bankruptcy court does not accept the case unless the creditors agree to accept a settlement. Creditors are more willing to settle these types of cases because they are at risk of losing most of the money that is owed to them, if the plaintiff is not successful.

If the plaintiff in the bankruptcy case cannot pay their debts as agreed to in the agreement, then the creditors will receive nothing. Most businesses will be able to continue operating after filing a bankruptcy if the owner has enough money set aside to pay back debts. However, if the owner has no money to pay back the claims, then the business will be forced into bankruptcy proceedings. The court will appoint a trustee to oversee the business affairs to ensure that everything is being handled properly.


After a bankruptcy has been filed, there will be a reorganization of assets and liabilities. All of the debts that are owed to creditors will be erased from the books of the business and a reorganization of the business structure will take place. This reorganization will mean that there will be a change in ownership of the business. If the previous business owner was an employee of the company, then that person will be required to surrender their certificate of stock or option shares in the business to the new owner. Certificates of stock have different restrictions than options and shares, so this will need to be determined in the reorganization plan.


A discharge order will be issued by the bankruptcy court. This order tells the business that all of the debts that are owed to creditors will be wiped out from the books of the business. Once this is done, there will be no longer a right or obligation for the business to repay debts to anyone. The discharge allows the business to restart operations without any further debt obligation. However, in some cases it may be necessary to refinance the business or obtain a line of credit in order to continue business as usual.


Most people are surprised by how quickly and easily a bankruptcy can be discharged from a bankruptcy court. There is really no time limit on how long the process will take so it is important that everyone stays active throughout the whole process. An active business will mean making payments on time and communicating with the bank to work out payment plans. This is the best way to keep the bankruptcy as manageable as possible so that future investors do not lose their money when a company goes bankrupt.