The Bankruptcy Code is a federal law which provides debtors with a "constitutional right" to a fresh financial start. Different Chapters of the Bankruptcy Code provide different debt relief to different kinds of debtors. Consumer debtors generally obtain their fresh financial start from either Chapter 7 or Chapter 13 of the Bankruptcy Code.

Chapter 7 - Liquidation — Discharges debts after liquidation of non-exempt assets, except that most assets (including personal effects, HHF&F, vehicles, and real estate) can usually be sheltered from such liquidation and so retained by Debtors!

Chapter 13 - Reorganization — Stays debts from collection upon a court approved repayment plan, except that sufficient income is required as are monthly payments to creditors for five (5) years in most cases.

Chapter 7 Bankruptcy (liquidation) proceedings would immediately stay (stop) creditor harassment and then ultimately discharge (cancel) creditor claims, thus providing debtors with a fresh financial start. On the one hand, this Chapter 7 debt relief might be considered a "nuclear remedy" which generally wipes debtor's entire debt slate clean without discriminating between specific debts, including but not limited to the following debt problems:

Credit Card Debts
Uncovered Medical Expenses
Personal Loans
Auto Loan Deficiencies
Residential Mortgage Deficiencies
Creditor Harassment Generally

On the other hand, this Chapter 7 debt relief usually does not solve the following special debt problems:

Recent Tax Liabilities
Child Support & Spousal Support Arrearages
Most Student Loans
Court Fines and Criminal Restitution including DUI
Fraudulent Charges

Chapter 7 Bankruptcy proceedings (which solve debt problems) are far, far more popular and common than Chapter 13 Bankruptcy proceedings (which postpone debt problems), but debtors need to qualify for Chapter 7 Bankruptcy proceedings:

Means Test: Either debtor's income cannot exceed the median income within this jurisdiction, or their income which exceeds this median income must be reduced by technical adjustments.

Debtor Estate: The property that debtor owns must qualify as exempt (see below) to avoid liquidation and thus to make practical sense.

Regarding the latter, debtors can generally keep most if not all of their assets (their estate) even when filing Chapter 7 Bankruptcy proceedings. The property which debtors can keep is defined by specific Exemptions found in the California Code of Civil Procedure.

Future credit may indeed even improve with the filing of Chapter 7 Bankruptcy proceedings. Debtors can certainly begin to improve their credit rating immediately after the filing of Chapter 7 Bankruptcy proceedings consistent with their fresh financial start. In this regard, it is not unusual for creditors to extend new credit to debtors immediately after Bankruptcy discharge based on the principle that debtors have resolved their financial difficulties, that they have no more debts, and that they cannot file another bankruptcy for eight (8) years, and that they are thus more credit worthy.

Finally, the current Bankruptcy Code (BAPCPA) pushed by President George W. Bush through his Congress made Chapter 7 Bankruptcy proceedings far more difficult and technical. It has become almost required that debtors retain competent counsel now to guide them through all the "additional hoops" of this new Bankruptcy Code. Notwithstanding these new requirements of this new difficult Bankruptcy Code, Chapter 7 Bankruptcy proceedings have become more popular than ever.