State of insolvency or an organization--in other words, an inability to pay debts. There are two kinds of legal bankruptcy under the U.S. law: involuntary, when one or more creditors petition to have a debtor judged insolvent by a court; and voluntary, when the debtor brings the petition. In both cases, the objective is an orderly and equitable settlement of obligation.
The five most common types of bankruptcy are:
Chapter 7: Also known as liquidation, allows individuals or businesses to give up nonexempt assets and walk away from most debts. (find out more click here)
Chapter 9: This section allows municipalities to reorganize debt.
Chapter 11: For individuals and, more commonly, businesses to reorganize debt. Similar to Chapter 13, in that it allows the filer to draft a plan to repay some debt while retaining assets. Chapter 11 has no debt limits, but is much more complicated, and therefore expensive, making it financially feasible mainly for businesses and very wealthy individuals. (find out more click here)
Chapter 12: Allows family farmers to reorganize debt. It works very much like Chapter 13, but with higher debt limits.
Chapter 13: For individuals who need to restructure their debt load. Some creditors will be paid back in full with interest, others in full and the remainder will be repaid a percentage of the debt. (find out more click here)