Eliminate the legal obligation to pay most or all debt. This is a "discharge" designed to provide a fresh start.

Stop foreclosure on a house or mobile home and allow missed payments to be caught up. However, it does not eliminate the mortgage or financing lien without payment.

Prevent repossession of a car or other property, or force the creditor to return property seized.

Eliminate the lien of a secured purchase money creditor, such as a mortgage lender, or auto loan lender.

Discharge certain debts such as child support, alimony, student loans, restitution orders, and some taxes.

Chapter 7 is also known as "straight bankruptcy" or "liquidation." It allows debtors to keep only property that is within certain limits called exemptions.

Chapter 13 is call "debt adjustment" or "wage earner plan of reorganization." It requires a debtor to file a plan to pay part or all debt from current income.

In Chapter 7 the debtor asks the court to discharge debts without repayment. Only exempt property may be kept by the debtor. Non-exempt property is turned over to the trustee who sells it to pay the creditors. In most consumer cases, all property is exempt.

If home or car payments are behind, Chapter 7 is not the right choice because it does not eliminate the creditors right to foreclose or repossess.

In Chapter 13 the debtor files a plan showing how debts and expenses will be paid. The debtor must have regular income, even if not from employment. The length of the plan is usually three to five years. Chapter 13 allows the debtor to keep all property, as long as the plan payments are sufficient as required by law.

A debtor receives full and final relief from the Chapter 13 after all payments are made over the full term of the Plan. If the Plan is dismissed before completion, much of the benefit is lost.

Filing fees paid to the court are $209 for Chapter 7 and $194 for Chapter 13. Attorney fees are subject to Trustee and Court approval, and range from $600 and up for a Chapter 7, to $1400 and up for a Chapter 13. Attorney fees depend on the complexity of the case and the number and types of creditors. In Chapter 13 much of the attorney fee can be paid through the Plan.

Make a full disclosure of income, expenses, assets, debts and financial transactions over the last year, through documents prepared by an attorney. In a Chapter 13 case, the debtor must also propose the Plan of debt adjustment payments.

Appear at a very brief "meeting of creditors" about 30 days after filing the case. In a Chapter 13 case, the debtor also must appear at a "confirmation hearing" where the final terms of the Plan are approved by the Trustee, Judge and any affected creditors.

In most cases where bankruptcy relief is a necessity, the discharge will improve the debtors ability to obtain credit. The reason for this is that although bankruptcy is a negative factor on a credit report, it is not as bad as the cumulative effect of all the unpaid account balances, charge offs, late payments, judgements and monthly payment obligations already on the debtors credit report.

Bankruptcy appears on the credit report for 10 years after a Chapter 7, and 7 years after a Chapter 13. Many credit card and auto loan lenders however, will offer credit to debtors immediately after they receive a discharge. Mortgage loan programs are readily available to debtors 12 months after discharge. This is all contingent on income eligibility, value of collateral and payment history since discharge of course.

Credit counseling is good for people who are not facing foreclosure or repossession, have ample income, and are willing to make significant sacrifices to repay all their debt with interest. Problems with credit counseling include unethical credit counselors who prey on debtors distress, and creditors who refuse to work with any credit counselor. Credit counselors advertising heavily are unlikely to be truly non-profit. Choose one carefully after seeking references.

An ethical attorney will always refer a client to credit counseling when it is appropriate. Likewise, responsible credit counselors refer debtors to bankruptcy attorneys when their situation can’t be addressed with credit counseling.

The problem with this "solution" is that the new consolidated payment is too high for the debtor, the debtor doesn’t make any lifestyle changes to address spending, and shortly after refinancing the debtor seeks bankruptcy protection anyway. The unfortunate thing is they then have already lost all the home equity they could have preserved if they filed bankruptcy initially.