In the first 9 months of 2011, the overall number of personal bankruptcy filings has fallen. Even though there have still been nearly a million and a half bankruptcies so far this year, around a million of which were personal bankruptcies, the rate at which Americans are going bankrupt is slowing down slightly.

Personal bankruptcies (as opposed to business bankruptcies) declined by 11 percent from January to September. Most personal bankruptcies are under Chapter 7 or Chapter 13 of the bankruptcy code. Chapter 7 bankruptcy is the more "traditional" bankruptcy, in which the debtor keeps some exempt property, but non-exempt property is sold. The proceeds from the sale are used to pay creditors, and any remaining unpaid debts are discharged. The discharge means that the debts never have to be repaid. Chapter 7 gives the debtor a fresh start.

San Diego bankruptcy lawyers point out that Chapter 13 works a little differently, but can also offer a debtor a way out of debt. Under a Chapter 13 reorganization, the debtor keeps all of their property and makes a payment plan to repay their debts. The payment plan usually is over a period of a few years. At the end of the repayment period, some debts may be discharged. Generally, though, Chapter 13 is a method of reorganizing debt and paying it off.

Chapter 13 is sometimes referred to as the wage-earner's bankruptcy, because if the debtor has a job, they have a way of keeping up with their repayment plan. One reason a debtor might choose Chapter 13 reorganization over Chapter 7 liquidation is if they have some special piece of property that they do not wish to lose in a bankruptcy liquidation. Foregoing the discharge offered by Chapter 7 may be worthwhile for a debtor who has something they want to hang onto more than they want to be quickly out of debt.

Source: Bloomberg Businessweek "Bankruptcies Fall 8% in Fiscal 2011 on Lower Debt, ABI Says" Nov. 8, 2011