Bankruptcy is the legal method by which a debt-ridden person may eliminate debt and obtain a new financial beginning.

The filing of bankruptcy will immediately stop the efforts of creditors from seeking to collect upon debts. In most cases, bankruptcy will completely eliminate the debt one owes to creditors. Federal law provides the right to file for bankruptcy and all bankruptcy cases are handled in federal court.

Bankruptcy may make it possible for you to do the following:

• Eliminate the legal obligation to pay most or all of your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.

What Bankruptcy cannot do?

Bankruptcy cannot cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to: Eliminate certain rights of "secured" creditors. A "se-cured" creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force se-cured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.

Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines, and some taxes.

Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.

Discharge debts that arise after bankruptcy has been filed.

Four Types of Bankruptcy

• CHAPTER 7 is known as "straight" bankruptcy or "liquidation" for individuals.
• CHAPTER 11 is a "reorganization" bankruptcy, mainly for businesses.
• CHAPTER 12 is reserved for family farmers.
• CHAPTER 13 is also called "debt adjustment" for individuals.

Unless you are a business, you will most likely file for either Chapter 7 or Chapter 13. Either of these types of bankruptcy may be filed individually or by a married couple filing jointly.