An individual who is badly in debt can file for bankruptcy either under Chapter 7 (liquidation, or straight bankruptcy) or under Chapter 13 (reorganization).
Under Chapter 13, the bankrupt individual agrees to pay his creditors over a 3- to 5-year period. During this period, his creditors cannot attempt to collect on the individual's previously incurred debt except through the bankruptcy court. In general, the individual gets to keep his property, and his creditors end up with less money than they are owed.
The disadvantage of filing for personal bankruptcy is that a record of this stays on the individual's credit report for 10 years, and most creditors will not risk lending money to such an individual.
Bankruptcy filings by individuals:
Source: November 14 2003 News Release, Administrative Office of the U.S. Courts. (External link to PDF file: [1])2003 Statistics
Bankruptcy filings by businesses:
The total number of bankruptcies rose 7.4 percent over the previous twelve months. These totals were for the 12-month period ending September 30, 2003.