Bankruptcy is broken down in three categories:

Chapter 7
Known as "straight personal bankruptcy", Chapter 7 is used by consumers to wipe out their unsecured debts. Businesses also file under Chapter 7 as a means of liquidation.

Chapter 11
Typically a business bankruptcy that allows companies temporary protection from creditors while they reorganize. Common in a recession for companies short of cash and good management.

Chapter 13
A personal financial reorganization by which consumers pay back their creditors under the supervision of a court-appointed trustee; payback period typically lasts three to five years. Most often used by homeowners facing foreclosure, it is used by people with less than $250,000 in unsecured debts and $750,000 in secured debts.

Bankruptcy terms:

Dischargeable Debts: Bills wiped clean by bankruptcy-typically, but not limited to, credit-card debts, medical bills, and unsecured bank liens of credit.

Non-Dischargeable Debts:Debts that must be repaid even after bankruptcy including income taxes, child support, criminal fines, and student loans.

Automatic Stay: Court-orders that kick-in once the bankruptcy petition is filed and automatically halts other legal actions, such as foreclosures and wage attachments.

Credit Impact: Agencies such as TRW may list bankruptcies on personal credit records for up to ten years.

Repeat Filings: Once debts are discharged, consumer may not file under Chapter 7 again for six years. If the bankruptcy petition is dismissed for any reason, it usually may be filed at any time.

Exemptions: California law allows bankrupt homeowners in Chapter 7 to keep up to $75,000 in equity if they are married, $50,000 if unmarried, and $100,000 if over 65 or disabled. There is a $2,400 equity exemption for automobiles.

US Trustee: The arm of the U.S. Justice Department that administers the bankruptcy system and acts as a watchdog against fraud and abuse.

Private Trustee: Court-appointed lawyers, accountants, and personal finance specialists who supervise bankruptcy filing.