Bankruptcy is a set of federal laws and rules that can help individuals and businesses who owe more debt than they can pay. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.
The Bankruptcy Code, which is codified as title 11 of the United States Code, helps debtors who can no longer pay their creditors get a fresh start by liquidating their assets to pay their debts, or by creating a repayment plan. It also protects troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each bankruptcy court.
The vast majority of cases are filed under the three main chapters of the Bankruptcy Code, which are Chapter 7, Chapter 11, and Chapter 13.
The fundamental goals of bankruptcy are:
- to give an honest debtor a "clean slate" by relieving the debtor of most debts, and
- to repay creditors in an orderly manner to the extent that the debtor has property available for payment.