As hard as we try to stay ahead of our financial obligations, sometimes our finances are leading us rather than the other way around. As bills pile up and we get farther and farther into debt, we have to stop and ask ourselves how we got there. Sometimes, the fault is our own and sometimes, bad stuff happens to good people. When debts are so deep that exploring other ways to get out of a rut also doesn't sound like a do-able solution, filing bankruptcy is sometimes the best option for getting a fresh start.

Bankruptcy laws and filing chapters vary by each state. While some states let you keep your assets, others take away everything you own and make you give up ownership. Almost every state does require that your credit history contain information regarding your bankruptcy for at least seven years. Before you can approach a mortgage company or other lender, most institutions won't allow a loan until at least 3 years after the bankruptcy verdict.

The laws surrounding filing bankruptcy are very complex. Bankruptcy comes in various forms and follows the laws set in chapters. Most personal bankruptcy is handled under Chapter 7, which discharges or cancels all debts. However, the larger debts such as a home loan must be paid with
personal collateral or returned to the creditor. In Chapter 13, you consolidate your debts and make one payment to the court for a set amount of time such as 3 to 5 years. Most people who file Chapter 13 retain their property but must prove that their monthly income exceeds their monthly living expenses. The other common types of bankruptcy - Chapter 11 and 12 - are reserved for corporations and
businesses that are closing or reorganizing.

Many people assume filing a Chapter is a simple and convenient way to get rid of burdensome expenses. So, why don't more people file bankruptcy? Quite simply, your credit is ruined. For a long time after the bankruptcy verdict, your bad credit follows you around like a dark cloud. Every time you file for a loan, your credit report thunders, "Beware!" and banks won't look twice at you. Even when a creditor eventually offers you a loan, you can expect to pay the highest insurance rates, premiums and interest rates. In many situations, you'll have to take out a second loan just to cover the down payment on the initial loan. While some people might not find that such a bad deal, these situations often spiral you farther into trouble. Rather than risking these bad offers, you should hold off a few years for your credit history to improve and then approach a better creditor.

Carefully go over any offer to consolidate your loans and debts. While these offers sometimes combine your troubles into one big sum, you should review how your debts would be paid off. The FTC (Federal Trade Commission) contains numerous reports online about scam debt-counseling services
that do little more than make your situation worse. Some counseling firms, however, are much better than filing Chapter 13. The American Bankruptcy Institute at http://www.abiworld.org has great reports and reliable information to help you side step and handle bankruptcyissues.

Copyright 2005 Philippa Munster. All rights reserved.
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Philippa Munster is the webmaster of Bay Bankruptcy Inc which is a useful source for information on bankruptcy on the internet. For more information visit her archive of articles here:
http://www.baybankruptcy.com