Bankruptcy Basics

• Bankruptcy provides a debtor a "fresh start" by extinguishing all or most of his debts. In some bankruptcy cases, a debtor can repay her debts over a period of time. Taxes and child support payments, however, cannot be extinguished. Debt that is secured by property, such as a car loan, is usually dealt with by returning the asset to the lender.
  
  

The Automatic Stay

• Creditors are stayed from attempting to recover a debt outside of the bankruptcy process. The police and regulatory exception allows the government to enforce its powers and prevents a debtor from using bankruptcy as a safe haven from the law. Generally, the government can enforce criminal, fraud, consumer protection, health, welfare and safety laws.
  
  

Resolving a Claim

• Government creditors can receive priority payment for taxes and regulatory requirements necessary for the debtor to continue her business, such as a registration fee or permit compliance. However, claims for such costs as environmental cleanup do not receive priority. Like any creditor, the government can negotiate with a debtor to receive better treatment of its claim.