Bankruptcy laws were formulated to give the "honest" debtor a "fresh" start. Bankruptcy is not intended to give debtors an unfair advantage over their creditors. This requirement comes from the United States Bankruptcy Code, Title 11 of the United States Code, and it is not intended to protect the debtor who has acted in bad faith in an attempt to defraud creditors.

The United States Bankruptcy Code is broken down into Chapters. Below are some of the common Chapters of the United States Bankruptcy Code.

Chapter 7 Bankruptcy is liquidation. A Chapter 7 debtor is an individual or entity whose expenses exceed its income. This could be caused due to illness, economic hardship, unemployment, unexpected lawsuits, tax debts, or any other circumstances that renders them insolvent. The individual or entity is unable at this point to repay back its debts. Filing for relief under Chapter 7 of the United States Bankruptcy Code can afford the individual or

the entity the ability to discharge or eliminate their dischargeable unsecured debts while maintaining a certain protection over some of their assets. Each State law grants the individual the privilege of protecting certain amount of equity in some of their assets. These are referred to as State Law Exemptions. The Federal government has its own exemptions similar to that of State Laws.

Upon filing for relief under Chapter 7 of the United States Bankruptcy Code, an "Automatic Stay" immediately takes effect. The "Automatic Stay" enjoins and prevents the creditors from taking any action against the debtor without first securing permission from the Bankruptcy Court. This "Automatic Stay" is a very powerful tool. It can and does stop all collection efforts against the debtor (includes the IRS). However, there are exceptions to the rule. For example, the "Automatic Stay" cannot prevent the authorities from arresting a fleeing felon only because the felon filed for Bankruptcy. Other exceptions are enumerated in the Bankruptcy Code. Once a petition is filed, any creditor who attempts collection efforts may be subject to serious penalties imposed by the Bankruptcy Court in violation of the automatic stay.

Receiving a final discharge constitutes a permanent injunction barring all creditors, owed dischargeable debts, from ever collecting on these debts, incurred prior to filing for Bankruptcy. At the same time, any assets of the debtor that were deemed exempt by the applicable State law, remain in the possession of the debtor.

A Chapter 11, commonly referred to as a "business reorganization", is commenced by the filing of a voluntary petition by the debtor, or the filing of an involuntary petition by creditors. Similar to other Chapters of the United States Bankruptcy code, there is an automatic stay which affords the debtor with a breathing spell. During this breathing spell, the debtor can and will commence negotiations with its creditors in an effort to negotiate its debts and to propose a reorganization plan. Corporations in a Chapter 11 exist in a form separate from its owners, the stockholders. In essence, the personal assets of stockholders of the debtor corporation are not at risk, unlike a company that is owned by an individual and that is not incorporated in any form.

The debtor in a Chapter 11 reorganization is referred to as the "debtor in possession". The debtor-in-possession generally has many creditors. In such a case, it is difficult for the debtor to attempt contacts and negotiations with these numerous creditors. Accordingly, the United States Trustee in major cases appoints creditor committees' which are generally comprised of the debtor's seven largest unsecured creditors. The committees duties are to negotiate on behalf of the debtor-in-possession.

A Chapter 11 is filed instead of a Chapter 13 for several reasons. For one, the debtor is not an individual. Two, an individual debtor has debt that exceeds the statutory limit (cap) placed upon a Chapter 13 Bankruptcy.

Commonly known as "individual debt adjustment", "individual debt consolidation", or "repayment plan". A Chapter 13 bankruptcy can be filed only by individuals. A typical case generally involves people who have fallen behind in their mortgage payments, delinquent with their priority taxes, or have debts that are generally non-dischargeable in a Chapter 7 (student loans, child support arrears, and others). Filing a Chapter 13 plan of reorganization takes into assumption that the individual has a source of income. Such income exceeds the individual's household expenses. In essence, the individual has disposable income to be able to fund the plan of reorganization. With this extra income, the individual will be able to pay back their creditors over a 36 to 60 month plan. The advantage is that the individual will be able to force creditors, in a successful plan, to accept his/her terms. These terms afford the individuals relief from losing their home, risking an IRS or State taxing agency levy, wage garnishments, liens and other methods utilized by creditors to collect on their debts.

Income as understood in the Chapter 13 process can be wages from employment, self employment income, Social Security & Disability benefits, Interest Income, Pension Income, and any other source that provides the debtor with a steady amount of income stream. Income could also be contributions from family members or friends.