What Is Bankruptcy?
Federal bankruptcy law (Title 11 of the United States Code, otherwise called the "Bankruptcy Code") was enacted to allow the honest debtor, who is unable to meet his/her financial obligations, to obtain a fresh financial start or to reorganize his/her financial affairs. Bankruptcy law accomplishes this goal by providing debtors with a legally enforceable mechanism through which they may: (1) eliminate, reduce and/or extend most debt, and (2) protect themselves, subject to certain qualifications, during the bankruptcy case, from pursuit and harassment by their creditors. At the same time that bankruptcy law seeks to give relief to the debtor, it is also the goal of bankruptcy law to deal equitably with a debtor's creditors by: (1) protecting the creditors against fraud, (2) treating similarly situated creditors in an equal manner, and (3) providing the creditors with constant notice and an opportunity to be heard during the bankruptcy case.
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Who Can File for Bankruptcy Protection?
With only certain limited exceptions, an individual (alone or together as a married couple) or a business (a sole proprietorship, partnership, or corporation) may file for bankruptcy protection. While debtors filing for bankruptcy protection are usually "insolvent" (meaning that they are either unable to pay their debts as they become due, or that their liabilities are greater than their assets), insolvency is not a requirement for a voluntary bankruptcy filing.
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What Are the Potential Benefits of a Bankruptcy Case?
A bankruptcy filing is often used as follows:

• By individuals to eliminate overwhelming credit card debt, medical bills, and other types of debt;
  
• By individuals or businesses to save their house or other real property from foreclosure or to save their car or other assets from repossession;
  
• By businesses, under a cash flow squeeze to obtain a "breathing spell" from their creditors in order to reorganize their financial affairs or to sell off assets;
  
• By individuals or businesses to extend or resolve burdensome tax liability; and
  
• By businesses to stop eviction from leased real property or repossession of leased equipment.

The above uses of bankruptcy are not exclusive and a bankruptcy case can be used for other purposes. However, an individual or business contemplating filing a bankruptcy case should carefully review their goals with a bankruptcy attorney since bankruptcy law can be complex. A bankruptcy attorney will be able to determine whether the above goals can be achieved depending upon the particular circumstances of a situation.
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What Are the Alternatives to Bankruptcy?
While filing for bankruptcy protection is often an option chosen by debtors in resolving serious financial problems, there are also non-bankruptcy options that may provide an alternative to a bankruptcy filing. Some of these options involve out of court "workouts" or settlements with creditors. Other options entail answering the creditor's complaint (within 20 or 30 days) and defending against a creditor's pursuit of debt by either challenging the legitimacy of the debt or the methods by which the creditor has attempted to pursue the debt.

In some situations, non-bankruptcy options are available and preferable. However, a bankruptcy filing is often the most direct and powerful tool for a debtor to deal with serious financial problems. Nonetheless, it must be stressed that bankruptcy is not the solution for every problematic financial situation, and that in some cases, bankruptcy entails certain risks.
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What Are the Basic Types of Bankruptcy Cases?
There are three basic types of bankruptcy cases: A Chapter 7 liquidation, a Chapter 13 "wage earner's bankruptcy," and a Chapter 11 reorganization. These basic types of bankruptcy cases are named after their respective chapters in the Bankruptcy Code and are appropriate to different situations. A Chapter 7 bankruptcy case may be used to eliminate or "discharge" most debts of an individual or to liquidate a business. A Chapter 13 bankruptcy case may be used by an individual or by a sole proprietorship business, that has a regular income, in order to pay debt over a period of time, and is often used by debtors who seek to save their house or other real property from foreclosure or individuals with other problematic debt who do not choose Chapter 7 because of equity in their assets. A Chapter 11 reorganization case may be used by a business or an individual to reorganize its financial affairs while continuing to own, manage, and operate its property.

The mechanics, requirements, and rights involved in these different types of bankruptcy cases vary drastically and how they may apply to a particular case can also vary greatly depending on the particular circumstances and parties involved in a case.
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Can a Credit Rating Be Rebuilt After a Bankruptcy Filing?
Persons and businesses contemplating filing for bankruptcy protection are often undergoing serious financial problems that have already, or will shortly in the future, appear on their credit reports. While a bankruptcy filing would also appear on a person's credit report, the bankruptcy filing has the advantage of dealing with and potentially solving some of the financial problems inherent in the situation. Therefore, after a bankruptcy filing, a person is often better situated to repay new creditors and in time can be a better credit risk than they were prior to the bankruptcy filing. A bankruptcy attorney can advise persons filing for bankruptcy protection as to the methods by which they can rebuild their credit rating.
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