There are two primary types of personal bankruptcy—Chapter 13 and Chapter 7—and both allow you to get rid of unsecured debt and stop foreclosures, repossessions, utility shut-offs, garnishments, and debt collection. When you file for bankruptcy, an “automatic stay” goes into effect, halting the foreclosure process and prohibiting creditors from debt collection efforts. In some instances, a judge can lift a stay if it appears that the bankruptcy is not serving its intended purpose. For example, if you file for bankruptcy the day before your home is supposed to be sold in foreclosure, your mortgage lender may request that the judge lift the stay—and in such a case, the judge may very well grant the request.

A Chapter 13 bankruptcy allows you to repay your mortgage company and other creditors, usually in a three- to five-year period, according to a court-approved plan. As part of that plan, you must make regular payments on your secured debts, including your mortgage, in addition to the amount you owe as a result of falling behind on your payments. A judge may permit your mortgage lender to resume foreclosure proceedings if you have filed for Chapter 13 bankruptcy and fail to make regular mortgage payments. You can also lose your home if your mortgage company completes the foreclosure sale before you file for bankruptcy.

Filing for bankruptcy is not without cost—you must pay filing fees (see http://www.uscourts.gov/bankruptcycourts/fees.html for more details) in addition to attorney fees. Bankruptcy also has a long-term cost—it generally remains on your credit record for 7 to 10 years, and can affect your ability to obtain insurance, credit, a job, and a place to live. Resources like the Federal Trade Commission (www.ftc.gov), Freddie Mac (www.freddiemac.com), and the U.S. Courts system (www.uscourts.gov) can provide you with additional information about bankruptcy and foreclosures.