Due to the economy of the last few years, 1.2 million Americans filed for bankruptcy in 2012 to get a fresh start. Most people don't know much about the different kinds of bankruptcy. Chapter 7 is more or less a total bankruptcy, allowing a person to wipe out most debts, but there's a price. It will stay on the credit report for 10 years. It shows up every time a landlord or credit card company checks the person's credit. And insurance companies and prospective employers can ask if bankruptcy has been filed.
The point is that bankruptcy is a last resort, not to be filed unless no way to pay debts exists. Also, keep in mind that not every debt is wiped out. Tax debts and student loans can remain, so if one plans to file for Chapter 7 bankruptcy, it might be wise to think ahead and use available cash to pay off these debts that won't go away in bankruptcy.
Chapter 13 bankruptcy provides an alternative approach to getting on with life in the face of big debt. In Chapter 7 bankruptcies, one probably will have to sell assets like vacation homes, jewelry, stocks, and so forth. Chapter 13, the alternative method for managing debts, can save those things that are dear because it provides a method for working out a payment plan to reduce debt. The benefit of Chapter 7 is that it is fast, typically requiring 3 to 6 months for the elimination of debts. The benefit of Chapter 13 is that credit may not be as adversely affected, but it will require a continuing relationship with creditors, maybe for years. Not everyone can file for Chapter 7 bankruptcy. Only those falling below state income guidelines are eligible, so Chapter 13 may be the only option.
This is a very complicated area of law. Consulting a legal professional is recommended. I am a personal injury attorney, not a bankruptcy attorney, but I do hope this information will be helpful in these hard, but improving, economic times.