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Understanding Bankruptcy

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.

Bankruptcy laws help people 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.  Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation. These procedures are covered under Title 11 of the United States Code (the Bankruptcy Code). 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 primary purposes of the law of bankruptcy are

• to give an honest debtor a "fresh start" in life 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.