So, what happens when the debt is so out of control that it's turned your life into a living nightmare? The unfortunate reality is that stress and anxiety can ruin your health, devastate your job, destroy your marriage and steal your peace of mind. Not withstanding personal loans from family or friends, there are generally only two remaining options available to those who want to continue breathing: Bankruptcy or professional debt counseling. One should not be fooled with the notion that bankruptcy is just a simple way to start over. The fact is that it’s a life-changing event that can cause life-long damage. Very few who have been through the process would report that it’s a painless wiping-clean of the slate. In fact, it’s listed in the top five life-altering negative events that we can go through, along with divorce, severe illness, disability, and loss of a loved one. It’s an event that can leave very deep wounds both to the psyche and the credit report.

But, when faced with no other practical options, it's important to understand the details of the process, in addition to what you might expect to happen under the two most common types of bankruptcy filed by consumers.

By definition, 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, and can generally be described as either "liquidation" or "reorganization.

When you file either kind of bankruptcy, a court order called an "automatic stay" goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.

Chapter 7 is liquidation bankruptcy.

Under this process you ask the bankruptcy court to wipe out or discharge most of the debts you owe. In exchange for this discharge, the bankruptcy trustee can take any property you own, sell it, and distribute the proceeds to your creditors. However, you are allowed to designate some personal property as "exempt from collection" by selecting from a list of state exemptions that you are eligible to keep. The following is a list of typically exempt properties:

· Equity in your home - up to $20,200.

· Insurance - You usually get to keep the cash value of your policies.

· Retirement plans - Most retirement benefits are protected in bankruptcy.

· Personal property - You'll be able to keep most household goods, furniture, furnishings, clothing, appliances, books and even jewelry valued up to $1,000 or so.

· Vehicle - Most states let you keep a vehicle as long as your equity doesn't exceed several thousand dollars.

· Wild Card - often $1,000 or more, which you can apply toward any property.

· Public benefits – Programs such as welfare, Social Security, and unemployment insurance, are fully protected.

· Tools used on your job.

Under the new bankruptcy law, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period.

Chapter 13 is reorganization bankruptcy.

Under this process you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford. The total amount will depend on how much you earn, the amount and types of debt you owe, and how much property you own. You lose no property in Chapter 13, because you fund your repayment plan through your income.

Fortunately, most bankruptcy cases can be avoided with proper help, such as certified professional counselors, and in the end will help to get your feet back on solid, credit worthy ground. The process will be painful, but bankruptcy, foreclosure, and lawsuits can sometimes be much more painful.