Bankruptcy allows a person to make a fresh start by having a court discharge or cancel most debts.  You might consider bankruptcy when you owe more money than you can be expected to repay over a reasonable amount of time.

A straight bankruptcy or liquidation also known as a "Chapter 7" bankruptcy provides immediate relief from creditors.  Most creditors cannot contact you in an attempt to collect their debt after a bankruptcy has been filed.  Bankruptcy can also prevent an attempted foreclosure of your home, garnishment of your wages, and threatened repossession.

If your debts can be repaid within a reasonable time period, the bankruptcy court may force you to file a "debt adjustment" plan under Chapter 13 of the bankruptcy code. "Debt adjustment" is a plan to repay your debts from your current income.

Bankruptcy is not a solution to every financial problem.  Bankruptcy does not eliminate the rights of secured creditors (creditors which have a right to take your property because they have obtained a security interest in such property).  Bankruptcy also does not eliminate child support obligations, alimony, some taxes, student loans and criminal fines.  Bankruptcy does not discharge debts incurred after a bankruptcy is filed.

If you file for a Chapter 7 bankruptcy, the law allows you to keep certain exempt property. Property which is not exempt is taken from you and distributed to creditors.  Exempt property in California includes some of the equity in your home and/or car, certain personal belongings, all or part of a retirement account and other property.