by James Boyd

Created on: June 14, 2009   Last Updated: June 15, 2009

Declaring personal bankruptcy is a serious step. It should only be considered if you are unable to meet your financial obligations. If cutting back on expenses and restructuring debt payments will allow you to avoid bankruptcy court, that is what you should do. If you find bankruptcy is your only option, the sooner you do it the better. There is no point in expending your dwindling funds by paying down a credit card that is going to end up being canceled in bankruptcy court. You will have to pay a lawyer and court costs and filing fees, so once you have decided that bankruptcy is necessary do not hesitate.

Be sure that you include all debts in your bankruptcy petition. If you leave one out you will still be liable for repayment. If you are really up against a wall the bankruptcy process is not very difficult nor does it take very long. There are two ways a personal Chapter 7 filing can go. If your income exceeds the level set for your state you will have to begin a re-payment schedule set by the court. If your income is below that level and you have no assets that can be seized the process is quick and easy. All of your debts that are covered by bankruptcy law (student loans are not discharged by bankruptcy) will be canceled and you are now free to start over.

Your financial troubles are not over. You will no longer be crushed under credit card debt but there will still be problems. Most credit transactions remain on your credit report for seven years. Bankruptcy, however, remains for ten years. You will find it difficult and maybe impossible to finance anything. If you want to buy a home you will need to come up with a much larger down payment than if you did not have a bankruptcy in your file. Some lenders will refuse to write a mortgage no matter how much you can put down. Interest rates for everything, including car purchases and credit cards (if you can get one) will most likely be higher than for other people. In short, borrowing money (which is what you are doing when you use a credit card) will be more expensive. If you get yourself into trouble with debt again, you cannot file another bankruptcy for another ten years.

Filing a Chapter 7 bankruptcy is a difficult and painful decision. It will appear on your credit report for the next ten years. If you must do it, though, it will erase your debts and let you start clean. It is a far better method than the debtor's prisons that were the only option not so many years ago.

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