The two most common chapters of the bankruptcy code under which people file are Chapter 7 and Chapter 13.

One of the main differences between the operation of the two types of filings is that a Chapter 13 is a debt consolidation proceeding in which you are paying creditors back. You pay one amount per month to a trustee who then pays your creditors for you.  In contrast, a Chapter 7 proceeding is not a debt consolidation proceeding.  You do not pay back your unsecured creditors.  It is sometimes referred to as a “straight bankruptcy”.  It will wipe out most debts with the exception of student loans, parking tickets, most taxes, child support obligations, and certain other debts.

But either filing will give you immediate relief from creditor harassment, wage garnishments and lawsuits. It is not too late even if a judgment on a lawsuit has been entered.

Chapter 7 and mortgages: A Chapter 7 may be useful if your home is in foreclosure, or foreclosure is threatened, particularly if you have a second mortgage. A second mortgage is sometimes referred to as an “equity loan”.   A Chapter 7 will not save your home, but it will discharge any remaining deficiency balance. A deficiency balance is created after a property is sold for an amount less than the remaining balance you owe on the mortgage(s). The resulting balance, the difference between the sale price and the mortgage balance(s), is the deficiency balance. You remain liable for the amount of the deficiency. A chapter 7 will discharge a deficiency balance.

Of course you have options other than filing a Chapter 7 for avoiding liability on a deficiency balance such as a deed in lieu of foreclosure, a short sale, or sometimes a loan modification. But a deficiency balance is only one piece of the puzzle and you should seek advice on which, if any, of these different procedures would be most beneficial in your situation.

You can explore loan modification directly with your mortgage lender, or look at the Federal HAMP program at www.hmpadmin.com . Here are other web sites for loan modification programs run by the government.  www.hopenow.com or call 1-888-995-HOPE for free personalized guidance from housing counseling agencies certified by the U.S. Department of Housing and Urban Development.  The hotline is open 24/7.

For free information on the President's plan to help homeowners, visit www.makinghomeaffordable.gov .