People accumulate debt because of a variety of circumstances, including medical problems, overspending and unemployment. Many consumers consider using bankruptcy to fix their debt problem, though this is usually a last resort because of the long-term effect that it has on their credit. Many companies advertise bankruptcy services by calling it debt relief services, so consumers should be wary of this before entering into an agreement with any debt relief company.
Many companies offer credit counseling services that can help consumers work through all outstanding debts to clear the bad information off of their reports steadily and efficiently. These companies can be for-profit or non-profit, but most charge fees for their services either way to cover their expenses. They work as intermediaries between creditors and consumers to create a repayment plan that works for both parties, and they could even negotiate lower interest rates in some cases.
Personal bankruptcy normally falls under chapter 7 or chapter 13. Chapter 7 is a liquidation bankruptcy, meaning that the person liquidates all unprotected assets to cover the outstanding debts. Chapter 13 involves creating a payment plan on the debt; this plan must meet all of the legal guidelines, and the court bases the amount and duration of the payments on the debtor's income. In either case, the court may discharge any remaining debts after the debtor completes the bankruptcy process.
When a consumer is considering bankruptcy, an attorney can help the debtor decide if it is the right choice for his or her specific situation. The attorney could also explain the process, benefits and consequences of each type of bankruptcy so that the debtor can make an informed decision. Finally, the attorney could prepare the documents for the bankruptcy and represent the debtor in court and throughout any negotiations with the creditors throughout the process.
Source: FTC, "Debt Relief or Bankruptcy?", December 02, 2014