As you are probably aware Bankruptcy in the United States is under Federal jurisdiction which allows Congress to enact statute law governing bankruptcy code. This is why bankruptcy cases are filed in U.S. District Bankruptcy Courts this is because state law plays a major role in many cases.
How it works is if a debtor declares bankruptcy to obtain relief from debt, they can accomplish this through a discharge of the debt or through a restructuring of the debt and this happens when a debtor files a voluntary petition for his or her case.
There are six types of bankruptcy Chapeters:
Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available
Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts
Chapter 11: rehabilitation or reorganisation, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganisation which typically allows companies to continue to function while they follow debt repayment plans
Chapter 12: rehabilitation for family farmers and fishermen;
Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy
Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.
The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases. Corporations and other business forms file under Chapters 7 or 11.
According to Cornell University Law School, the process is put in place to 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.