Bankruptcy Information for Americans

Bankruptcy existed in ancient civilizations and still exists today. It’s a legal process that allows an individual, couple, or business to be excused from some of his, her, or their financial debts.

In the United States, federal law determines the guidelines and procedures required to file bankruptcy. The states are not allowed to create legislation in this particular area of the law.

In general, there are two categories bankruptcy. In what is known as a liquidation or chapter 7 bankruptcy, the debtor must give up his or her property. All the debtor’s property is sold and any proceeds are used to pay his or her outstanding debts. A reorganization or chapter 11 bankruptcy allows the debtor to keep his or her property. However, the debtor must agree to repay creditors a portion of the amount owed according to an installment plan.

Chapter 7

In a chapter 7 bankruptcy, otherwise known as a liquidation bankruptcy, all of the debtors assets are gathered up and sold by a bankruptcy trustee. Unlike a chapter 13, the debtor does not get to keep his or her property and pay creditors back according to a payment plan. Certain types of property and/or assets may be considered exempt in this case. However, any remaining assets will be liquidated, resulting in loss of property.

The goal of chapter 7 bankruptcy is to allow the debtor to pay off debts with his or her existing assets, while also being freed from the burden of debt.

Chapter 11

In a chapter 11 bankruptcy, also known as a reorganization bankruptcy, the debtor is allowed to keep his or her property. However, he or she must adhere to an agreed upon payment plan comprised of installments in order to repay a portion of the money owed to creditors. Filing for chapter 11 bankruptcy involves submitting a petition to a special bankruptcy court. In general, chapter 11 bankruptcies are less common than chapter 7 bankruptcies. 


Bankruptcy fraud is a crime that may take several forms. In some cases, the debtor hides some of his or her assets in order to avoid having to surrender them to the bankruptcy trustee. In other cases, an individual intentionally offers false information when submitting a petition for bankruptcy to the courts. Other forms of bankruptcy fraud include filing multiple times and bribing trustees appointed by the court. All four cases may be attractive for different reasons, but the most common form of bankruptcy fraud is the concealment of assets.

Debt Relief

Similar to filing for bankruptcy, debt relief can help to alleviate the burden of money owed. Whether the debt is the result of poor spending habits, unemployment, or an illness, too much debt can quickly become overwhelming. In some cases, bankruptcy is the best way to deal with debt. In others, debt relief is a better option. Debt relief may involve speaking to creditors to negotiate a payment plan, accessing a credit counselling service, or considering other consolidation options for debt repayment.