A bankruptcy filing should only be considered as a last resort measure. If you have exhausted all other possibilities, your minimum payments are no longer within your means and you are already defaulted in a few payments or if you have lost your income you are no longer able to repay your debts, then it is time to consider talking to a bankruptcy attorney and have the bankruptcy chapters explained. Any attorney that specializes in bankruptcy law will be able to offer you a free consultation to have all your bankruptcy questions answered and explain the process in detail and let you know what is it that you can expect and whether this is a viable option for you or not.
There are basically two types of bankruptcy for an individual:
Chapter 7 Bankruptcy
A Chapter 7 is when an individual can not repay his or her debts and asks a federal court to grant them a Chapter 7 discharge. Under a Chapter 7, all of your unsecured debt will be wiped clean while your secured debt can be dealt with by liquidating some of your assets. For example, if you have a debt from a Best Buy card, that is secured debt and you may be asked to return the TV or whatever other appliance you bought with it. While this is not common practice, it can happen. Sometimes the creditor will offer you to settle for pennies on the dollar and let's say that you owe $1000 on that secured debt card, probably the merchant will offer you to settle for $250. Otherwise, this debt gets wiped with all other debts.
Chapter 13 Bankruptcy
This is also known as the Wage Earners Bankruptcy. Under a Chapter 13, the court analyzes all your income and expenses and determines how much money leftover you have each month. This money is used to repay a portion of your debt. Typically the court will order a repayment plan of 3 - 5 years. At the end of such period, all unpaid portion of your debt will be wiped clean.
What Will Happen To My Credit?
Let's be honest here. Your credit score will take a hit. But if you are researching bankruptcy options, then chances are good that your credit is already suffering. This discharge will stay on your credit report up to 10 years but you can begin rebuilding your credit as soon as a few months after the process is finished. Another advantage is that by law, once your process begins, all your creditors must stop any communication with you either by phone or mail. In other words, no more creditors harassing you day and night.