Bankruptcy; a blessing in disguise.

Bankruptcy. It's one of those words that conjures up images of the Great Depression, tattered clothes and public disgrace.

Actually, filing for protection against unmanageable debt under the U.S. Bankruptcy Code is a responsible and efficient way of reconciling fiscal overextension and says Lesly Harper, a Newark, N.J., attorney who specializes in bankruptcy proceedings.

"For consumers, filing for protection relieves the pressure of getting harassing phone calls from creditors, and it gives them a fresh start," says Harper.

There are three bankruptcy categories, or "Chapters," 7, 11 and 13. Chapter 7 is a straight liquidation of all consumer assets that, when approved by a bankruptcy court, wipes out all unsecured debt.

Chapter 13 is also for consumers and involves the reorganization of debt, which means that you take all of your separately accumulated debt, bundle it together and agree to a negotiated series of repayments among all creditors. That debt is paid through a trustee assigned by a bankruptcy court.

Chapter 11 also involves a reorganization of debt, but it's used solely for businesses. The difference between Chapter 7 and Chapter 13 bankruptcies, Harpers explains, is that in Chapter 13 you can have some debt that is exempt from liquidation such as a mortgaged home or a financed car, which is considered secured debt.

Bankruptcy is not for everyone, says Harper. "I had one lady come in and her debt was $6,000. The debt was in small amounts spread among several credit cards. Nothing was secured. I told her that I didn't think bankruptcy was for her because her debt ratio was really small and she did have an income. What she probably needed to do was get some credit counseling and reorganize her debt that way.

"Conversely, I have clients that come in and they are $100,000 in debt and there is no way they can pay that off," Harper continues, "because their income does not exceed, and never will [exceed] their liabilities."

One 46-year-old woman, who spoke on condition of anonymity, filed under Chapter 7 protection after her ex-husband racked up over $100,000 in joint credit card arrears.

Before her spouse abused the credit cards, "I always had A1 credit", she says. "I've cosigned for other people. If I wanted to get a new car I never had any problem."

Even though she worked two jobs and had an annual income of over $60,000, by the time her creditors were about to take legal action against her, she was way over her head.

"They wanted a big amount right away because, we were so far behind," she lamented. I became very depressed. They had even begun to garnish my check at work."

Harper says that as soon as a petition of bankruptcy is filed, the court issues a stay that stops the garnishment, the phone calls and the urgent "you must pay now" letters.

Another client, who also requested anonymity, says he and his wife filed under Chapter 13 after being pinned against the wall by debt accumulated through late mortgage payment charges.

"My mortgage company forced us into bankruptcy," he says. For six years, with two kids ages 12 and 7, this couple paid $1,200 on a $90,000 mortgage. Sometimes they paid late, but they paid. "We didn't worry about the late charges because the main bill [the principal] was always paid," he says.

But after six years the late charges had accumulated to equal roughly the same amount as a regular payment. "So as we were paying our bill they were applying it to the late charges putting us always a month behind," he says.

At one point, the mortgage company started holding payments and not cashing regular payment checks. That put the couple further in arrears and the bank started foreclosure proceedings. "Well, we weren't going to just let them take our house, not like that. So we filed for bankruptcy. They sent back the checks they had been holding and we have a new lease, some breathing room. We can't use our credit cards, but hey, it's better to use cash. That way if we can't pay for it--we don't get it."

Harper says there are different caveats under the various bankruptcy protections, but the bottom line is, rather than becoming destitute, you can take control of your finances and get a fresh start. The best way to find out whether bankruptcy is right for you is to see a lawyer. Harper says that initial consultation is usually free of charge.