Bankruptcy is a federal process created by Congress with the goal of giving debtors a financial “fresh start” from burdensome debts. The Supreme Court articulated the purpose of the bankruptcy laws in a 1934 opinion as follows: “[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.  Most cases are filed under the three main chapters of the Bankruptcy Code – Chapter 7, Chapter 11 and Chapter 13.  Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.  (Source:


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