Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."

Chapter 7 bankruptcy is the liquidation variety -- property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start.

Chapter 13 is the most common type of "reorganization" bankruptcy for consumers -- you repay your debts over three to five years. Both kinds of bankruptcy have numerous rules -- and exceptions to those rules -- about what kinds of debts are covered, who can file, and what property you can and cannot keep.

Thanks to the new bankruptcy law, debtors will now have even more hoops to jump through when trying to file for bankruptcy. Some of the new requirements include pre-filing consultations, with an approved consumer credit counseling service, in an attempt to force debtors to pay their obligations outside of bankruptcy.

Additionally, in order to file bankruptcy, a debtor needs certification from that credit counseling agency before they are able to move forward. It can be very important to choose the right time to file for bankruptcy relief. For instance, in general, you should always wait as long as possible before filing bankruptcy because you can do so only once every six years. In most cases, you will want to save this valuable option until you really need it. Also, you may not need to file bankruptcy even though creditors are threatening you because you may have no nonexempt property or wages. This means you have nothing the creditors can take from you. You can't be put in jail for failing to pay your civil debts (other than fines or other court ordered amounts). The only way to be sure bankruptcy is right for you is to discuss your situation with a lawyer familiar with bankruptcy. Every case is different, and laws change from time to time. This article gives you some basic information, but it does not substitute for consultation with an attorney.