What is a bankruptcy petition?

A bankruptcy petition serves as the formal application to initiate a bankruptcy case. It is a critical document that an individual or business files with the court to declare their inability to pay their debts and to seek relief from creditors. By filing a bankruptcy petition, a debtor can obtain an automatic stay, which temporarily halts collection actions, allowing them to reorganize their finances under the protection of the bankruptcy court. This process may lead to the discharge of certain debts or the development of a repayment plan, depending on the type of bankruptcy filed.

The function of the bankruptcy petition is distinct from other financial documents, as it is specifically focused on triggering the bankruptcy process and seeking legal protection from creditors. Other options do not accurately capture this context; for example, a claim for debt settlement pertains to negotiating with creditors to reduce owed amounts, a request for loan modification involves changing the terms of an existing loan rather than addressing overall debt insolvency, and a document for lien establishment relates to securing a creditor's interest in property rather than petitioning for bankruptcy relief.