Bankruptcy in the United States is when a person or organisation falls into debt to such an extent that that it looks as though there is no prospect for them to return to a state of solvency.
The law requires that they have their affairs placed in the hands of a bankruptcy trustee in order that the trustee may enter into an arrangement for the liquidation of their assets and the repayment of their debts to the greatest extent possible.
This is followed by a legal discharge of the obligation to repay their debts after the legally prescribed period.
Article 1, Section 8, Clause 4 of the United States Constitution allows Congress to enact uniform laws across the country on the subject of bankruptcy.
Title 11 of the United States Code now forms the backbone of the law in America on bankruptcy.
However, there is one important element of bankruptcy law which is subject to the law of each of the individual states.
This relates to the type of possessions which are exempt from the grasp of the bankruptcy trustee and varies between states but there are some elements which are in common.
For instance, the tools of the trade for a tradesman in bankruptcy are exempt from the liquidation in many states.
A number of states also have exemptions for your personal car and even your own house.
There are a number of different types of bankruptcy prescribed by the Bankruptcy code.
Chapter 7 is basic liquidation for individuals and businesses.
There is Chapter 9 which is municipal bankruptcy that obviously, as the name suggests, only applies to municipal governments.
There is Chapter 11 bankruptcy which is also known as rehabilitation or reorganisation and is primarily used by businesses which are seeking relief from their debts.
It can, however, also be filed by individuals.
Chapter 12 is for insolvency of farmers and fishermen whilst Chapter 13 is for people with regular income, it is also known as the wage earners insolvency.
The final major form of insolvency is under Chapter 15 of the code which deals with the liquidation of foreign entities or people not in the United States.
This means that consumer bankruptcy is the type of insolvency where Chapter 7, 11 or 12 could apply.
It is necessary to look at the circumstances of an individual debtor to identify the most suitable form of bankruptcy to file for and where necessary hire a fully qualified attorney to assist the process of advising on the process of bankruptcy.