What Is Bankruptcy?
Bankruptcy is legal option that allows you to eliminate some or all of your debts or have more time to pay them back, and is governed by U.S. federal law. It is administered by the court system and grants you protection from creditors. It recognizes the fact that when you do not have the ability to pay back your debts, it is better for you, the lenders, and the economy if you are given a financial fresh start.
For consumers there are usually two approaches that apply, named for the section of law that created them: Chapter 7 Bankruptcy where most debts are eliminated, and Chapter 13 Bankruptcy that sets up a favorable repayment plan over 36 to 60 months. See our Bankruptcy Basics page for a discussion of the differences.