When does filing for bankruptcy make sense, and what's the difference between Chapter 7 and Chapter 13?

Bankruptcy can be the right move when your debts are unpayable within a reasonable timeframe and other options – budgeting, counseling, negotiation – won't close the gap. Chapter 7 is a liquidation that wipes out most unsecured debt (credit cards, medical bills) in a few months, but you must pass a means test based on income, and non-exempt assets can be sold. Chapter 13 is a reorganization for those with steady income: you repay part of your debt over 3–5 years through a court-approved plan, which can help you keep a home or car you're behind on. Both stay on your credit report for 7–10 years and stop collection calls and lawsuits via the automatic stay. Some debts – most student loans, recent taxes, child support – usually survive. Consult a bankruptcy attorney; many offer free consultations to assess which chapter, if any, fits your situation.