What is Bankruptcy

A legal proceeding involving an individual or business which is struggle to pay back unpaid debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's property are measured and evaluated, whereupon the assets are used to pay back some of outstanding debt. After the successful completion of bankruptcy proceedings, the debtor is relieved from the debt obligations incurred prior to filing for bankruptcy.

Bankruptcy laws help people who can no more pay their creditors get a fresh start - by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled firms and provide for orderly distributions to business creditors by way of reorganization or liquidation. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and companies one more opportunity and providing creditors with a measure of debt repayment.

Bankruptcy filings in the United States can fall under one of several chapters in the Bankruptcy Code, such as Chapter 7 (which involves liquidation of property), Chapter 11 (company or personal "reorganizations") and Chapter 13 (debt repayment with lowered debt covenants or payment plans). Bankruptcy filing specifications vary widely between various nations, leading to higher and lower filing rates depending on how easily a person or business can finish the procedure.

Bankruptcy in the United States is a issue placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), that allows Congress to enact "uniform laws on the subject of bankruptcies throughout the United States". The Congress has enacted statutes governing bankruptcy, primarily in the form of the Bankruptcy Code, found at Title 11 of the United States Code. Federal law is amplified by state law in some places where Federal law fails to speak or expressly defers to state law.

While bankruptcy cases are always filed in United States Bankruptcy Court (an adjunct to the U.S. District Courts), bankruptcy cases, specifically based on the validity of claims and exemptions, are often based upon State law. State law therefore performs a significant role in many bankruptcy cases, and it is often impossible to generalise bankruptcy law throughout state lines.

Usually, a debtor declares bankruptcy to get relief from debt, and this is accomplished either through a discharge of the debt or through a restructuring of the debt. Usually, whenever a debtor files a voluntary petition, his or her bankruptcy case commences.

The purpose of bankruptcy is two fold:

(1) to give the debtor (the party filing bankruptcy) a fresh start and

(2) to pay creditors in an orderly fashion. Bankruptcy is governed by federal law which often trumps state law when it comes to the actions of both the debtor and creditors.