When should I consider personal bankruptcy?

Bankruptcy generally is considered the debt management option of last resort, because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, making it difficult to acquire credit, buy a home, get life insurance or sometimes even get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts.

A decision to file for bankruptcy is a serious step. You should make it only if it is the best way to deal with financial problems.

There are two types of bankruptcy available to most individuals:

• Chapter 13: Chapter 13 or "reorganization" allows debtors to keep property they might otherwise lose such as a mortgaged house or car. Reorganization may allow you to pay off or "cure" a default over a period of three to five years, rather than surrender property.
• Chapter 7: Chapter 7 or "straight bankruptcy" involves liquidation of all assets that are not exempt in your state. The exempt property may include items such as work-related tools and basic household furnishings, among others. Your property may be sold by a court-appointed official or turned over to your creditors. You can file for Chapter 7 only once every Six years.

How can filing bankruptcy help?

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shutoffs and debt-collection activities. Both types also provide exemptions that permit you to keep certain assets, though these "exemption" amounts vary greatly from state to state.

Can bankruptcy clear all obligations?

No. Bankruptcy cannot rid you of all obligations and will not clean up a bad credit record. A bankruptcy will be part of your credit record for up to 10 years.

Bankruptcy usually does not wipe out child support, alimony, fines, taxes and some student loan obligations. Also, unless under Chapter 13 you have an acceptable plan to catch up on your debt, bankruptcy usually does not permit you to keep property when the creditor has an unpaid mortgage or lien on it.

How do you file for bankruptcy?

Bankruptcy cases must be filed in federal court. There is a filing fee, which sometimes may be paid in installments. This fee does not include the fees of your bankruptcy lawyer.

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