Bankruptcy means, when the person or firm is legally declared unable to pay their creditors. Bankruptcy law helps a debtor to resolve debts by dividing his assets among creditors. Some laws permit debtor to continue their business and using revenue to pay-off debts. After distributing their assets the bankruptcy declaration allow debtors to feel free from their financial obligation even if their debts have not been paid in full.
Bankruptcy proceedings fall under two basic categories. When filing of bankruptcy case is under Chapter 7, it is known as liquidation. Under this type of bankruptcy proceeding, a trustee is appointed, who gather property from debtor and then distributes the proceedings among creditors. Bankruptcy proceedings under Chapters 11, 12 and 13 allows debtor to use future earnings to pay off his debts.
Bankruptcy is said to be voluntary when it is to be filed by debtors but if creditors set off the bankruptcy case it is called involuntary bankruptcy. The trustee collects all of your assets including car, home, investments etc. You and your family have to leave the home.
After finalizing your bankruptcy case, you will again start your life. After few years you will be able to maintain your credit rating again.