People who are having trouble paying their debts sometimes consider bankruptcy as a remedy for this situation. The bankruptcy will wipe out debts so that they will not have to be paid. Creditors are unable to try to collect those debts or sue the debtor and obtain a valid judgment. With a few exceptions the creditors have no claim on the debtor's future income or future assets.

There are three main types of bankruptcy: Chapter 7: Was formerly called straight bankruptcy. This is a liquidating bankruptcy with the principal advantage of the debtor coming out without any future obligations on his discharged debts; Chapter 11 is a procedure whereby you can reorganize and is generally used by businesses or by debtors with substantial assets that would be lost in straight bankruptcy. Under Chapter 11 proceedings the creditors are temporarily stopped from taking any action against the debtor while he tries to work out a plan of reorganization, in which he proposes a method of paying or settling his debts. The creditors vote on the plan and the plan must also be approved by the Court. This type of proceeding is designed to preserve a going business which would otherwise be lost in a liquidation; Chapter 13 allows the debtor to propose in good faith to pay all or part of his debts from future income over a period of time. If the court approves the plan of payment, the debts may be settled in this manner, even if the creditors are not willing to go along with the plan. If the debtor makes the payments as required, he will not have to surrender his property. Chapter 13 can only be used by an individual debtor, not a corporation and only if the total debts owed are less than certain limits for secured and unsecured debts. An individual engaged in a business might use Chapter 13 to pay his debts or settle them over a period of time while he continues to own and operate the business.

An alternative to bankruptcy may be to work out an " out of court" settlement with creditors, reduction of payments to creditors, attaining help from a consumer credit counseling service, or payment of debts by sale of assets or borrowing on assets.

Bankruptcy is a very complex area. There are many factors that go into the decision of whether to file, and, if so, the election of the appropriate chapter. The right decision for you depends on an evaluation of your family status, your assets and your obligations. It is a very serious step that could affect you for the rest of your life. It is possible in a bankruptcy that a debtor will lose all of his assets and still come out owing all of his debts.

If you are contemplating a Chapter 11 or Chapter 13 proceeding, you need to be represented by an attorney because of the complexities in the law.

Bankruptcies are picked up and noted by various commercial credit reporting companies and are carried for several years. However, most people find that if, after filing bankruptcy, they promptly make the payments that they are left with such as car payments, house payments, rent or utility payments, and can re-establish their credit.