Bankruptcy law is the area of federal law that handles situations related to bankrupt persons or businesses. Under the law, a person can file bankruptcy if they are unable to pay their dues in any way. There are different chapters of the bankruptcy law and most of the individuals and business will fall under these categories.
Chapter 13 of the bankruptcy law can be used by people who have the resources to pay off their debts in about 3-5 years, but not immediately. The debts of the person are not eliminated and instead they get additional time to pay off their debts. The creditors too need to comply with the rules and provide additional time for them.
Chapter 7 of the bankruptcy law is the most common type of bankruptcy where the court declare the debtor to be bankrupt and all his or her assets and all properties are sold off. The money collected is then distributed among the creditors to settle their claims. This is good option for people, who have no hope of paying off their debts in any other way. It is mandatory for the debtors to pass a means test and go through counselling service before they file for bankruptcy under the bankruptcy law. The test and the counselling results are then used by the court to decide the chapter of the bankruptcy code that will work best for the situation.