Insolvency laws in the U.S., otherwise known as bankruptcy, are embodied in the U.S. federal bankruptcy code. A number of bankruptcy types exist within the code, both for personal as well as business bankruptcy. In each type, the law essentially allows a filing party to come into the court and seek insolvency protection until the related finances can be sorted out. While critics argue much of the bankruptcy code is an excuse to let debtors off the hook, in reality the process involves the court taking over a party's estate and determining how best to straighten out the related financial mess.States have no jurisdiction with insolvency laws. The federal bankruptcy code supersedes any local laws attempted and for good reason. Many debts involve parties and institutions across state lines. If insolvency laws were local, one state could favor its party over the other unfairly. Federal law instead covers interstate commerce and related transactions, so bankruptcy ends up in federal court instead.Personal InsolvencyPersonal bankruptcy laws apply in two ways, under Chapter 7 bankruptcy and Chapter 13 bankruptcy. Under Chapter 7 law, the filer essentially goes to court and declares all his remaining assets and debts. The court then prioritizes the debts by secured with collateral and unsecured. After exempting certain assets like a primary residence or a car to get to work, remaining valuable assets are liquidated by the court. The funds are then used to pay off creditors in priority. Those remaining get dismissed by the court. The debtor is then cleared to begin a financial life again free of all affected debts named in the filing. Both individuals and businesses can file Chapter 7 filings for protection.Chapter 13 filings ask the court for a different remedy. Instead of placing the liquidation in the court's hands, the filer seeks time to get his finances straight. Under a court-approved payment plan, debt payments are reduced but financial liabilities are still paid. Creditors' loans are not dismissed. However, the approach gives the debtor more time to get above water and pay off the debts completely by a further date in the future. Typical plans include lower payments, removal of interest charges, and monitoring by a bankruptcy court trustee.Business InsolvencyChapter 11 filings involve businesses seeking the same protection from the federal court as a Chapter 13 filing. However, a major difference involves the fact that the business gets to make up its own plan rather than the court. Many creditors tend to object to this approach since it favors the debtor business.