Personal Bankruptcy Law and Legal Definition

Personal bankruptcy refers to a bankruptcy that is filed by an individual where majority of debts are non-business. Personal bankruptcy can be filed under Chapter 7 and Chapter 13 of the Bankruptcy Code. Chapter 7 bankruptcy involves liquidating the individual’s assets and turning them over to the courts. A trustee of the courts follows a court-supervised procedure, reduces the debtor’s assets to cash, and then pays the creditors. In case of chapter 13 the individual develops a plan of payment that allows the person to pay his/her creditors and to resolve the debts through division assets among creditors.