When you are over your head in debt, bankruptcy may seem like the perfect cure-all. It promises to wipe the slate clean. More than 1 million people file for personal bankruptcy every year, seeking relief from debt collectors and the weight of their bills.

But filing for bankruptcy is not a decision to be taken lightly.

To file for bankruptcy, you, the debtor, file a petition with a federal bankruptcy court. The court appoints a trustee, or the person who will oversee your case with your creditors. The court puts into effect an "automatic stay," which prevents creditors from seizing your bank accounts, repossessing your car or taking your house or car.

Individuals are eligible to file for two types of bankruptcy: Chapter 7, called "straight" bankruptcy, and Chapter 13, also known as "wage-earner" bankruptcy.

Here's how each type works.

Chapter 7: Liquidation

1. You, as an individual or business, ask a court to wipe out the debts owed.
2. After filing out forms detailing your property, income, and monthly living expenses, you must attend a hearing with your trustee. At this meeting, non-exempt property that will be sold to pay off your creditors will be determined.
3. Your non-exempt property is sold and the proceeds are used to pay off creditors. What property is exempt varies by state, but typically includes partial or total equity in your home, life insurance, retirement plan assets and most furniture and household goods.