Bankruptcy had been a debtor's life line for a long time.
However, in the recent past debtors who were trying to avoid paying back their creditors had been using this method to get out of debt.
Keeping this in mind, the bankruptcy laws were changed to protect creditors and help out genuine debtors.
The new change has made it difficult for debtors to qualify for bankruptcy.
If the income of the debtor is more than the median income of his state then he needs to take a means test to prove that he really is in need of bankruptcy.
With such conditions in place many people no longer qualify for chapter 7 bankruptcy but instead are eligible for only chapter 13.
Chapter 13 is more like a repayment plan where the debtor need to pay off all his creditors with new payment terms and conditions.
Most people don't want to carry a bankruptcy on their credit report while just getting the benefits of credit counselling.
The next debt relief option which can provide maximum relief to the debtors is debt settlement.
This method provides a legal way for the debtor to reduce his debt amount.
Here the debtor convinces the creditor to settle the account for much less than the total amount that is due.
The creditors agree to such an arrangement if they think that the risk of the debtor going bankrupt is high.
Hence, they take up the offer to negotiate on the settlement amount.
In most cases the balance amount is reduced by 50 %.
The creditors can get back at least 50 % of the amount that was due to them and the debtors can walk away by paying only 50 % of the total balance.