Corporations and companies are given opportunities to file for bankruptcy when they can no longer meet their debts and creditors. Individuals may also be given the same opportunity in certain jurisdictions. Such instances are referred to as consumer bankruptcy or personal bankruptcy.
Upon claiming consumer bankruptcy, a petition is filed to discharge all debts against the person making the claim. The court reviews and evaluates such a petition and may have the person’s debts cancelled or pay back debts and other creditors based on a payment scheme under the protection of the court. Once an individual’s debts are cleared under court order, creditors can make no other attempts to retrieve such debts. However, the court does not merely dismiss all debts against an individual without any payment. The court may order the individual to liquidate some of his or her assets in order to partially or fully pay some of the debts he or she may have. Certain assets are protected from liquidation, such as clothing and personal affects, but all other property may be sold to meet debt payments.
For individuals who request for a payment scheme rather than debt elimination, the court may provide a mechanism wherein the individual can repay his or her debts over an extended period of time. This is usually done by individuals who expect income at a later date or have fallen behind in payment. This allows the individuals to declare bankruptcy without losing property through liquidation and is viewed as a temporary solution to a problem of debt payment.