The last resort for people with an excessive debt load is bankruptcy. While many cases can be resolved with credit counseling or debt negotiation, some amounts are simply unmanagable. In these cases, personal bankruptcy may be a final resort. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7 - each filed in a federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7 while attorney fees are additional and can vary. The government would rather see consumers seeking debt relief with bankruptcy under Chapter 13 rather than Chapter 7.

Chapter 13

Chapter 13 allows people with a steady income to keep property that they might otherwise lose through the bankruptcy process, such as a mortgaged house or car. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a period of three to five years, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official, a trustee, or turned over to your creditors. There is an eight year waiting period after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.

Both types of bankruptcy may rid you of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Personal bankruptcy, however, does not remove child support, alimony, fines, taxes, and some student loan obligations.