Bankruptcy is a legal term used for the individuals and organizations, which have pile of debts with insufficient funds to pay their creditors. The Bankruptcy Law’s process helps them to control their finances by organizing their debts or division of personal assets among their creditors. It is a branch of civil law that takes into consideration the rights of creditors, so that they’ll be treated somewhat equally. It is not always necessary to distribute the assets and debtors can stay in the business and pay its debts as the revenues are generated. If a certain debtor is still having debts, after resolving all the assets in creditors, bankruptcy law allows him to free himself or be discharged.

There are two basic types of bankruptcy proceedings which consumers may file. One is Chapter 7 Bankruptcy and other comes under Chapter 13. In Chapter 7, a filing of bankruptcy claim is called as liquidation. It is the most common type of proceeding in which all non-exempt property is liquidated (sold) and money is distributed among creditors to resolve all the debts. If debts are still not paid completely, after selling out the property, rest of the debts are forgiven.

Chapter 13 involves the rehabilitation of the debtor. It means debtor is allowed to reorganize his/her finances and stay in business, while paying off debts with the revenue generated. Under this proceeding, it gives a steady source of income to debtor. It is quite a convenient procedure to pay back debts, it estimates the worth of assets and profits that can be generated on average and then divided into easy monthly installments to be paid to creditors.

There are some other types of Bankruptcy, handled under Chapter 11 and Chapter 12. Businesses file bankruptcy that are struggling and need to reorganize their finances. While Chapter 12 is somewhat similar to Chapter 13, but to be eligible for filing bankruptcy it is necessary that 80% of the debts must arise from operations of family farm. Please note that while bankruptcy Law eliminates certain kinds of debts like medical bills, credit card bills, unsecured loans, some obligations like child support or spousal support can not be considered under bankruptcy law.