Bankruptcy is great for assisting people who cannot pay their debts to get a new financial lease on life. The process allows someone to discard toxic debt or agree to a strict payment plan in order to pay off as much of those debts as possible. This article will offer a very basic overview of bankruptcy from the perspective of the U.S. Courts.

According to the U.S. Courts, a bankruptcy case starts once the individual with a debt problem files his or her bankruptcy petition with the court. Bankruptcies can be filed by spouses jointly, by individuals, or by another entity like a corporation. After that filing, the bankruptcy is handled by the federal court system via the rules of the U.S. Bankruptcy Code, which allow for five main types of bankruptcy.

First, there is Chapter 9 bankruptcy which may be filed under by municipal utilities, school districts, taxing districts, towns, cities, and villages. Second, there is Chapter 7 bankruptcy, which is what most people think of when they hear the word. Chapter 7 requires individuals to liquidate and sell certain assets in order to pay off as much debts as possible. Then the remaining debts are dissolved.

Chapter 11 bankruptcy, known as reorganization, involves a court-approved repayment plan. Once the individual makes all the payments that were part of the plan, which last three to five years, any remaining debts are dissolved. Chapter 12 bankruptcy offers family farmers and fishermen debt relief — not many individuals can qualify for this bankruptcy but it is very useful if one can. Finally, we have Chapter 15 bankruptcy which has to do with bankruptcy filings by parties from different countries.

The U.S. Courts recommends that anyone considering bankruptcy first speak with a qualified lawyer, and obtain representation to help them complete the process. Although the temptation may be there to go it on one’s own, the U.S. Courts does not recommend a pro se bankruptcy without a lawyer.

Source: uscourts.org, “About Bankruptcy,” accessed July 29, 2016