A) An individual generally files for bankruptcy in order to obtain one or more of the following benefits:
- have certain debts discharged completely or sort out which debts are dischargeable from those debts which will still be owed;
- receive extra time to pay debts;
- receive a break from creditor calls while debt relief is arranged;
- have the assistance of a trustee to pursue lawsuits or other claims that the debtor owns so that the money obtained can be used to pay creditors; or
- eliminate certain judgment liens if those liens impair an exemption.
B) A business files for bankruptcy to obtain similar benefits, including the possibility of operating the business while debt relief is arranged. A business other than a sole proprietorship is not entitled to receive a discharge of debts in a chapter 7 case.
There are negative consequences of filing for bankruptcy, and these may outweigh the benefits. For example, a potential debtor may need to resolve one debt (such as a mortgage), but if the home does not have any equity, there may not be any benefit to filing for bankruptcy. It is highly recommended that an individual or business owner who is considering filing for bankruptcy consult with a bankruptcy attorney to learn how a bankruptcy may affect its financial situation.