Bankruptcy is a legal process that happens in U.S. federal court (not your state or city courts) that allows consumers or businesses to eliminate their debts or repay them in an extended fashion as ordered by the bankruptcy court.

Bankruptcy filings made by people might cover one person or a married couple. The minute a bankruptcy is filed in court, the court takes over legal control of the filer's assets and stops all the collection efforts against the filer, who is known legally as the debtor. Then the court puts its stamp of approval on what debts will be disposed of and which will need to be repaid.

When the court takes over, it doesn't mean that there's a judge sitting there in her black robe running your financial life. Actually, what happens in the courtroom is only a small part of the process. Once you file, you'll be assigned a court-appointed official, known as a trustee, who's in charge of totaling up everything you have against what you owe and then determining which assets you have that may be exempt from seizure to pay off your debts.

While federal courts manage the process, state laws actually shape it a little — and sometimes a lot. For example, states can add their own particular guidelines on what someone filing bankruptcy gets to keep or give up to settle their debts. That's why it's always a good idea to find the money for an experienced bankruptcy attorney and a qualified financial planner to get you through this process. Why? Because there are no one-size-fits-all answers in a bankruptcy situation.

Two things are certain. If you are considering bankruptcy, it makes sense to get the best help possible to plan a before, during, and after strategy that will get you permanently back on your feet. If you already have a bankruptcy on your record but are still facing an uncertain financial future, you need to find the right advice for your situation as well.

This is where bankruptcy gets interesting. While the central cause for people filing — unmanageable debt — remains the same, the reasons that people file for bankruptcy have changed significantly in the past decade.

Rising credit card, student, and home-loan debt have been significant triggers for bankruptcy in recent years, but people get there in a variety of ways besides simple overspending. Many have huge debts getting out of college; some lose a job and are out of work for a significant period of time; others find themselves owing considerable money after a divorce or other court judgment. Sudden events can create financial disasters, which is why today there are many people with a lifetime of good credit practices sliding into bankruptcy.

Yet the fastest-growing cause of bankruptcy filing has nothing to do with the reasons just stated. In a time of dwindling health insurance benefits that don't cover rising health care costs, medical debt has become a major reason that people seek court protection. A landmark paper published in medical journal Health Affairs in February 2005 made big news with this discovery. In reviewing 2001 bankruptcy data, the article said about half of the respondents listed medical debt as their number-one reason for filing bankruptcy. The article stated that among the respondents whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness, even though nearly 76 percent actually had insurance when they became ill.

At this writing, however, the bankruptcy spotlight was beginning to turn to borrowers who had financed their homes with low- and no-down payment loans, adjustable-rate mortgages with questionable cap structures, and the general effect of huge, crushing debt.

In April 2007, the Consumer Federation of America pointed out that between 2001 and 2006, subprime mortgages nearly quadrupled from 5.4percent of mortgage originations to over 20 percent of the entire mortgage marketplace. In addition, higher interest rates since 2004 were making borrowers' payments significantly higher. While foreclosures are not an automatic ticket to bankruptcy court, it was notable that by spring 2007, foreclosures stood at a thirty-seven-year high.

A bankruptcy filing doesn't mean you leave the courthouse clicking your heels with no debt whatsoever. In fact, in light of recent changes in bankruptcy law, people are leaving bankruptcy court with plenty of debt they still have to repay.

Your continued payment responsibilities depend on the debt and whether local and federal laws allow you to eliminate, or discharge, those debts when your filing is approved in court. If you can't get a debt discharged, you'll generally be required to reaffirm that debt and keep paying it as if you never filed for bankruptcy. Depending on your agreement with the court, you may be allowed an easier payment system, but that's it.

In most states, those nondischargeable debts include child support, alimony, car and mortgage loans (since those assets are secured by their underlying value), and certain kinds of taxes the individual owes. It's also pretty hard to skate on student debt since their interest rates are already favorably low with generally easy terms. And if you're in a situation in which an individual creditor is pretty angry and willing to fight, you might find it particularly difficult to dump those debts as well.

A qualified bankruptcy attorney knows the law and can keep you from making costly mistakes. However, a visit to a trained financial planner first might be a better idea since these professionals take a much broader look at whether you need to actually file bankruptcy or not.

It's important to know that bankrupt doesn't mean broke. Depending on what the court approves, a debtor may get to keep certain key assets such as homes and cars or assets that are related to an ongoing business, such as tools, trucks, or office or factory equipment. They want to make sure you have an ongoing stream of income to pay off your debts, after all. But not everybody gets to successfully file bankruptcy, and particularly after an update to U.S. bankruptcy laws in 2005, bankruptcy is a much tougher process.