ABA Family Legal Guide

Consumer Bankruptcy

Introduction to Bankruptcy

Bankruptcy Defined

What exactly is bankruptcy?

Bankruptcy is a legal process through which people and businesses can obtain a fresh financial start when they are in such financial difficulty that they cannot repay their debts. The fresh start is achieved by eliminating all or a portion of existing debts and/or by stretching out monthly payments under the protection and supervision of a court. The process is also designed to protect creditors, because general unsecured creditors share equally in whatever payments the debtor can afford to make.

During your bankruptcy case, creditors (with some limited exceptions) generally cannot try to collect their debts from you directly. Nor can they try to collect from you after the conclusion of the case for any discharged debts. Again, there is an enumerated list of debts that are not dischargeable, e.g., domestic support obligations; fraudulently incurred debts; DUI obligations; certain taxes; student loans; and others. These exceptions are discussed in detail later in the chapter.