Some people think of bankruptcy as an easy way to offload a crushing debt burden, and it’s sometimes the first method they reach for. Well, it may well relieve the burden, but it’s far from easy and should be the very last thing you use to do so.

While the law has made it relatively easy to actually file papers, the process – like any legal proceeding – is far from painless. You will have to justify your filing, exposing all your financial history to a judge and opening it to objections by creditors. If you genuinely owe the money, they’re unlikely to settle happily for 10 cents (or less) on the dollar.
More on Bankruptcy – What To Consider Before Filing

In life, there comes a time when making a tough decision is inevitable. Filing for personal bankruptcy is one such decision. This article about things you need to know if considering the bankruptcy route.

Bankruptcy is a huge decision. It is a decision whose consequences will remain with you for many years. Before taking the plunge, make sure you have exhausted all other options including debt consolidation and debt settlement. If it is the only way out, and sometimes it is, then go ahead.

There are two options for filing personal bankruptcy; Chapter 7 and Chapter 13. You must reside in a state for 90 days prior to filing.

Chapter 7 bankruptcy, also known as liquidation, is the most popular. This requires you to give up most of your assets and gets you out of almost all your debts. All your nonexempt assets are sold and the proceeds go toward paying creditors.

Exempt assets cannot be sold. These may include clothing, food, books, furniture, wedding ring etc.

Chapter 13 bankruptcy is also known as wage-earner bankruptcy or reorganization. It allows you to keep most of your assets and arranges partial or full payment of the debts owed over three to five years, under court supervision.

You can file for both types of bankruptcies (hopefully not at the same time) without a lawyer, but it is strongly suggested that you get one. You also have to pay a filling fee with the court. This fee can be paid in installments with court approval.

If you decide to go without a lawyer make sure to thoroughly do your homework.

Finding a Lawyer

Finding a good bankruptcy lawyer may not be easy. You can try consulting a friend, relative or co-worker whom you know has been through this for recommendation. Or you can go to American Bar Association, Lawyers.com or American Bankruptcy Institute.

Do It Yourself

Lawyers cost money and, as you know, they don’t come cheap. You can do it yourself, but this can be extremely stressful. At the bottom of this page you’ll find a link for a do it yourself bankruptcy kit. We have not tried it, but it may be worth checking out.

New Bankruptcy Laws

The “new” bankruptcy law that went into effect in October 2005 makes it extremely difficult to file for bankruptcy under chapter 7.

To qualify for Chapter 7, you now have to pass a means test. And they just won’t take your word for it. You have to show the court a copy of your last tax return. Your income must be below median in your state, following IRS guidelines.

If it is determined that you can make partial payments to your creditors you cannot file for Chapter 7 and will have to go with Chapter 13.
 
You are also required to get credit counseling in the 180 days prior to filling.

Basically what our lawmakers did was to give creditors and collectors a virtual license to hound you for the rest of your life, the very thing bankruptcy was supposed to prevent.

In a Chapter 13 bankruptcy, your income is determined, your expenses deducted and then your disposable income put toward repayment of debt. Your disposable income is defined by subtracting IRS allowable expenses not what you believe to be your expenses. The money is paid to a court-appointed trustee who then pays the creditors.

You are also limited as to what you can buy before filing. Debts incurred up to 90 days before filing cannot be included in a bankruptcy petition.

After filing but before you’re discharged from the bankruptcy you must complete a course in financial management.

Your attorney must also certify that what you say in the you use documents in court is true (isn’t this what perjury laws were made for?).

For a do it yourself bankruptcy kit go to Filing Bankruptcy and get a kit for a one-time membership fee of $35.95 (price subject to change).

If you are in serious debt, it would be worthwhile for you to know how to file for bankruptcy and how it will affect your credit. Bankruptcy is something everyone has heard of, and has a vague idea about, but little knowledge about how to go about it or its actual effects.

More on How to File For Bankruptcy