The United States Code has established a procedure that enables debtors to manage debt by seeking relief in the federal court system. The Federal Bankruptcy Act contemplates several different ways to manage this debt and in some cases to pay some or all of your creditors. Because the federal statutes and procedures change with each new Congress, this discussion is intended only to serve as a source of background information.

For consumers there are at least two different statutory bodies of law by which to obtain relief from one’s creditors: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. These are named for the Sections in which they appear in the Federal Bankruptcy Act. There is also a Chapter 11 procedural scheme that allows businesses to reorganize.

Chapter 7 is the traditional means of declaring bankruptcy, and enables one to clear one’s debt, with some exceptions, and to begin one’s financial slate anew. Chapter 13 is the alternative that is often encouraged by attorneys and judges and provides that one can obtain relief from their debts, but not to wipe the slate completely clean. Chapter 13 is designed to help creditors obtain something from the obligations owed, although nowhere near 100 percent.