Bankruptcy

A legal proceeding in U.S. Federal Court, entered into by borrowers who are unable to pay their debts. In Chapter 13 bankruptcy, the borrower files a payment plan with the court and promises to make partial payments to creditors. In Chapter 7 bankruptcy, a trustee may sell the borrower's assets and use the proceeds to repay the creditors. Both types of bankruptcy stay on the borrower's credit history for up to 10 years.