• Bankruptcy can help with unpaid debtssmashed piggybank-canadian image by William Berry from Fotolia.com
  
  Bankruptcy is the inability of a company or individual to pay out all debts to creditors. In the majority of the situations, it must be declared by the debtor himself. However, in the occasion of "involuntary bankruptcy," creditors may file a bankruptcy petition against the debtor, usually if the debtor is a company. Once declared, bankruptcy helps the debtor to eliminate part of its debts, because the court rules that the debtor is no longer required by law to pay its debts.
  
  

Chapters

• The most common chapters of bankruptcy are Chapter 7 and Chapter 13. If you file for Chapter 7, the court will sell your properties according to state laws in order to pay the creditors. The court will rule your inability to pay debts and you will be free of debts.
  
  If you file for Chapter 13, you will not lose any property, but you will have to present before the court a plan of payment to creditors within 5 to 7 years.
  
  

Who Can File Bankruptcy?

• To declare bankruptcy, the debtor must be a resident or have a commercial property inside of the U.S. Banks, insurance companies, and credit unions cannot file for bankruptcy. For an individual, the law specifies that the debtor must have regular income and owe less than $250,000 in unsecured debt or less than $750,000 in secured debt. Someone who has filed for Chapter 7 less than six months before cannot yet file again.
  
  

Credit Counseling Agency

• Another requirement to file bankruptcy is to receive counseling from an approved credit counseling agency six months before the filing date. The counseling objective is to orient people to other available options to filing for bankruptcy and to help them to be completely informed if they do decide to file. This counseling agency will allow the debtor to analyze which chapter of bankruptcy will suit him better, but the debtor will still have to pass other requirements in order to be able to file for one chapter or another.
  
  

Median State Income

• To file for Chapter 7, the debtor needs to fall under the median state income levels. You must prove that your income has been lower than the median income from your state for at least six months. You will need to do the "Means Test," a test that will compare you and your family to other families of the same size in your state and determine if you qualify for Chapter 7 or not. Some exceptions, such as loss of your home in a natural disaster, can be considered even if your income is higher than the median.
  
  

Documentation

• You will also need to present the right documentation if you want your petition approved. You will need to give proof of your identity and the identity of any other person responsible to support any of your dependents, show detailed proof of the past six months' income and expenses, a list of your assets and liabilities, a certificate that identifies the name of your attorney, a certificate from the approved credit counseling agency that provided you with services, a description of those services and a copy of your Federal Income Tax return. In the case of a Chapter 13 filing, a copy of the repayment plan to the creditors is necessary.