Personal bankruptcy refers generally to the two types of bankruptcy most common to individuals and couples: Chapter 7 and Chapter 13. Both types of personal bankruptcy are designed to help people who can’t pay their debts to get a fresh start and build more stable financial lives, though they operate in very different ways.
The automatic stay that’s entered as soon as most bankruptcy cases are filed stops wage garnishment instantly. Then, depending on the type of bankruptcy and the nature of the underlying debt, the obligation to pay may be entirely eliminated or the debt may be included in a manageable monthly repayment plan. Either way, the garnishment is eliminated for most debts.
Chapter 7 bankruptcy primarily serves people who have relatively low income and a lot of unsecured debt, such as credit card bills and medical debt. In a Chapter 7 case, most unsecured debt can be eliminated. Once the debt is discharged, creditors and debt collectors are legally prohibited from attempting to collect it. Chapter 13 bankruptcy offers a solution for people who have regular income, but have fallen behind on their bills and can’t get caught up. In Chapter 13 bankruptcy, the debtor typically keeps all property and makes monthly payments toward past due balances over a period of three to five years.