Bankruptcy is a process governed by federal law that provides debt solutions for individuals who get in trouble with debt. The US Bankruptcy laws and courts are designed to provide honest debtors with a fresh start. People get into financial trouble for a variety of reasons. Some have unexpected medical expenses, or may have experienced a divorce or loss of job. Others may have overextended themselves through the use of credit card, getting into or purchasing a home or other item that was beyond their means. Whatever the reason a person finds himself or herself in financial trouble, bankruptcy may be the only alternative available.

Most bankruptcy proceedings are under Chapter 7 of the Bankruptcy code. These are called "liquidations". A liquidation cancels or discharges a persons debts.

First, the debtor prepares a set of forms and schedules called a bankruptcy petition where all of the debtor's assets and his debts are listed. Also, information is listed about the debtor's income and expenses. That document is then filed with the bankruptcy court and a trustee is appointed to oversee the case. The trustee's job is to review the petition and interview the debtor at a bankruptcy hearing. The trustee looks for any assets that the debtor may have that are non- exempt under the bankruptcy law. The trustee may sell any non-exempt assets and the proceeds are then used to pay some of the debtor's creditors. Most cases filed are called "no asset" cases. The debtor is allowed to keep all of their property because it falls within the exemptions provided under the law. [Exemption Tables]

Some debts are non dischargeable and bankruptcy will not erase them. Child support and alimony, student loans, debts obtained though fraud, certain taxes, and debts for personal injury caused while intoxicated are examples of certain debts which are non dischargeable.

Chapter 13 bankruptcy is sometimes called the "wage earner" plan. It is meant for debtors with regular income (like wages) and the Chapter 13 debtor proposes a plan for catching up on his or her bills. It is especially useful when a debtor is falling behind in mortgage payments or student loans and wishes to catch up. The debtor proposes a plan that lasts for 3 to 5 years and the debtors income in excess of their regular expenses is paid to the trustee.