Personal Bankruptcy

Bankruptcy is a legal process that gives people who can't pay their bills a chance to start over. In general, bankruptcy should only be considered as a last result as it is a major step that will impact many aspects of your life.

There are two types of bankruptcy that are available for most individuals. These are Chapter 13 and Chapter 7. Chapter 13, also called "reorganization" allows the person to keep property, which they may otherwise lose, such as a mortgaged house or a car that was obtained through a loan. With reorganization, the debtor can pay off their debts over a period of three to five years, rather than surrendering the property. Chapter 7 is known as "straight bankruptcy", which means that it involves the liquidation of all assets except those that are exempt under your state's laws. These exempt items may include such things as the home you live in or items essential to your work. Chapter 7 can only be filed once every six years.

Bankruptcy is often the only way to avoid foreclosures, repossessions, garnishments, utility shutoffs, and other debt collection activities and still maintain many of your assets (depending on your state's exemptions). It cannot clean up a bad credit record and will in fact negatively affect your credit rating for up to ten years. It also cannot exempt you from paying child support, alimony, legal fees, court fines, taxes and some student loans. Also, in order to qualify for Chapter 13 you must have a plan to catch up on your debt.

You must file bankruptcy in a federal court and the fee is $160 (which may sometimes be paid in installments.). You should also hire a bankruptcy lawyer. There are some free public legal services that may handle a bankruptcy case for those who qualify or who may be able to provide referrals for private bankruptcy lawyers. Keep in mind that unless you are getting free legal services through some sort of program, an attorney could cost around $1,500 just to prepare the paperwork.

Bankruptcy is not something to be taken lightly. Therefore you should look into other methods of working out your financial problems first. You may want to seek credit counseling or other services first. Try contacting the creditors that you owe money to and seeing if you can work something out with them first. Also, you may want to check and see if you qualify for any sort of state aid before taking this drastic step.