Bankruptcy is a process by which consumers can eliminate or repay some, or all, of their debts under the protection of the federal bankruptcy court.

Generally, bankruptcy takes one of two forms - liquidation or reorganization.

In the short term, bankruptcy prevents continued efforts by creditors to collect debts.

In the long term, bankruptcy can eliminate repayment obligations or provide for a restructuring of the debtor's obligations, thus enabling the debtor to obtain a fresh start.

The different types of bankruptcy are referred to as Chapters. Individuals who meet the qualifications may file under one of four different chapters of the Bankruptcy Code:

Chapter 7 — Liquidation

Chapter 11 — Reorganization

Chapter 12 — Voluntary repayment plan for family farmers or fishermen

Chapter 13 — Voluntary repayment plan for individuals with regular income

Chapter 7 is the most common type of bankruptcy relief sought by individuals and can often be completed within 6 months of filing.

 Chapter 13 is the second most common and includes repayment of some or all debts, typically over three to five years.

A Chapter 7 bankruptcy is a relatively fast process that can eliminate much of your unsecured debt- including medical bills and credit card debt.

Chapter 7 bankruptcy involves the liquidation of assets that are not exempt under the law, to pay back creditors.

If your assets are limited to those exempt under the Bankruptcy Code applicable to your case, this is called a “No-Asset” case.

In No-Asset cases, if you are within the income guidelines, it may make sense to file a Chapter 7 Bankruptcy to discharge (clear) your debts and financially reset your life.

However, Chapter 7 is not for everyone. It is important to engage a bankruptcy attorney to evaluate your case and discuss your eligibility, any assets that may be at risk of being sold if you file a Chapter 7 bankruptcy and a strategy to pursue your desired outcome.

A bankruptcy discharge releases a debtor from personal liability for certain types of debts.  Where a debt has been discharged, the debtor is no longer legally required to pay the debt and creditors are prohibited from taking any collection action.

Although a debtor does not have to pay back debts discharged in bankruptcy, a valid secured lien typically "survives" the bankruptcy case. Secured liens are common with vehicles and real property. As a result, if a debtor falls behind on payments of secured debt, a secured creditor may repossess or recover the property (collateral) secured by the lien.