In the USA there are two basic legal types of bankruptcy for individuals: Chapter 7 and Chapter 13.  Chapter 7 Bankruptcy and Chapter 13 are legal proceedings that are available to a person to cope when they cannot pay what they owe.  Personal bankruptcy must be filed in a federal bankruptcy court and costs about $160.00 in court fees, plus lawyer's fees.

Chapter 7 means liquidation of all your assets that are not exempt from the actual bankruptcy settlement.  Exempt property may cover cars, household goods, and property required for work; for example for  a carpenter the tools you use to carry out your work will be exempt from the bankruptcy settlement so you can continue to earn.  Exemption levels depend on individual US state law.

The court appoints a trustee to handle liquidation of non-exempt assets.  This trustee can sell or turn over the debtor's property to creditors. The court then discharges your debts and you are then officially  debt-free, but have officially gone bankrupt.  You are allowed by law to file a Chapter 7 bankruptcy once every six years.

Chapter 13 bankruptcy lets you retain property, such as a mortgaged house or a car, as long as you have a steady income. Chapter 13 is a court-ordered, approved repayment plan to your creditors which allows you to use future income to pay back your debts over three to five  years period without handing over any property.  When you complete all the plan's payments,  your debts are discharged by the court. Both sorts of official bankruptcy can serve to  get rid of unsecured debts and stop foreclosure, repossession, garnishments, utilities being cut off, and debt collection pressures.  The also both feature exemptions that allow retaining permitted assets, subject to varying limits. 

Bankruptcy can't remove the obligations of most child support, alimony, taxes, fines and even some instances of student loans. Expert financial advisors maintain that bankruptcy must always be the last resort used for responding to debts and financial obligations, since bankruptcy has significant long term consequences.  It remains on an individual  credit report for 10 years, so it is  more difficult to get credit in future.  Even though bankruptcy vanishes from this credit report after 10 years, future employers or lenders can and do ask if you have ever filed for bankruptcy.

Disclaimer: The information contained in this article is for informational purposes only.  Seek professional advice where needed, and never borrow more than you can realistically repay.