Bankruptcy is the legal procedure that allows individuals, businesses, and other organizations to get relief from burdensome debts, either by modifying the repayment schedule, reducing the debt, or eliminating it altogether.  Precisely what kind of relief is available with respect to a particular debt depends on the nature of the debt (e.g. is it a secured debt like a mortgage, or unsecured debt like a credit card balance), the type of bankruptcy, and several other factors that vary based on individual circumstances.  Bankruptcy law is federal law, and is provided for in the United States Constitution, Article 1, Section 8.  A bankruptcy case is filed in a United States Bankruptcy court.

The two main objectives of consumer bankruptcy are to give the debtor a fresh start, and to pay creditors as much as possible without unduly burdening the debtor.  The first of these objectives is accomplished through the bankruptcy discharge, which releases the debtor from personal liability for specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.  The second objective is accomplished by the automatic stay, which prevents most creditors from taking any action to collect a debt once a bankruptcy is filed, and by the bankruptcy laws and rules that lay out how much of a debtor’s property may be taken by creditors, and in what order the creditors get paid.

There are two main types of consumer bankruptcy:

Chapter 7 – Liquidation

Chapter 13 – Debt Adjustment