They can arrange informal payment schedules with creditors that may be more manageable than payment plans an individual could get on his own. The decision to file for Bankruptcy should be given careful consideration. A bankruptcy case will remain on credit reports for ten years for most credit transactions, and for the rest of an individual's life for larger credit transactions, such as the purchase of a house. Through a bankruptcy proceeding a debtor can be released from most of her debts and be protected from creditors. In a Chapter 7 case, all of a debtor's belongings that are not exempt are converted to cash and distributed among creditors.
Exempt property is certain property that is protected from creditors by law.
A debtor gets to keep exempt property and a portion of the proceeds from the sale of partially exempt property. If the debtor's exempt property has more equity than the maximum amount allowed, then the creditor can force a sale. If the debtor's exempt property has more equity than the maximum amount allowed, then the creditor can force a sale. After the sale, the debtor will receive the exemption amount and the creditor will keep the rest to pay off the debt owed. Property used as collateral is not exempt.