When your monthly bills begin to fall way behind, many people ask themselves: Should I file for bankruptcy protection? Well, this is really a hard question to answer, but there are some things that most people aren't' sure about.

Credit Impact

If I file for bankruptcy protection, what happens to my credit score? This is simple, it drops incredibly low. So low that you will typically not be able to get a loan for some time. For many, this isn't an issue, as their credit scores are already very poor. Keep in mind that this will stay on your credit report for 10 years.

Are There Alternatives?

Do I have other options to keep in mind first?  What are the alternatives to bankruptcy to keep in mind?  Should I consider them? Generally you should, but it really depends on your situation. Consumer credit card counseling is a good alternative. With credit counseling, you typically make one check per month to the credit counseling company. They in turn, pay your creditors. In addition, the company will work with your creditors to reduce your interest rates, and reduce or eliminate late fees, and the other "extras" that often get piled on when you make your payments late. There are some scams out there with this, so be careful. It's generally best to choose a non profit credit counseling company. Be sure to investigate the company thoroughly. It would be a good idea to at least explore the other options, before you decide to file.

You may be able to negotiate a debt settlement with credit card companies or other creditors.  It's important to look into this, since it could help you out in the long run.

Keeping Your Assets

If I decide to move forward, can I keep my vehicle? Can I keep my home?  In most cases, the answer is yes. Generally, if you have a loan for your vehicle, and you decide to file for bankruptcy, you should be able to keep your vehicle. You can typically reaffirm the loan. In essence, this means that you will continue to make payments on the vehicle and be able to keep it.

DIY or Legal Help?

Should I file for bankruptcy protection without an attorney? This is really a hard question to answer. While it can be done, and it will save you a lot of money, it may not be the best in all situations. This can be very, very stressful. Many people think it's well worth the money to pay someone to assume a portion of the headache for you. There are some DIY type kits out there that many people have tried. There are mixed reviews on these kits. In addition, the laws that surround this are evolving and changing. An attorney can keep up the changing laws much more effectively than the average person. Even though you could, I don't think you should file for bankruptcy protection on your own.

Can I Keep My Home?

Should I file for bankruptcy protection if I own my own home? Will I lose my home? Generally speaking, you will not lose your home. Having said that, you need to realize that you are only allowed to have a certain amount of equity in your home, which varies by state. This is another loan that you can typically reaffirm. In many cases, if you have too much equity in your home, you will need to file for chapter 13, which requires a repayment plan of some of debt. So, should I file for bankruptcy protection if I own my own home is a really tough question to answer. Check into the requirements of your state, then ask yourself if you should move forward.

Types of Bankruptcy Protection

Chapter 13

This will require a repayment plan. Some people are only willing to file this way, perhaps from a sense of pride. Typically the repayment plan lasts three to five years.

Chapter 7

Generally speaking, you will eliminate all unsecured debt, making it easier, in most cases, to afford the loan you want to reaffirm, like your car and house. Should I file for bankruptcy?

Chapter 11

This is designed for businesses, but it can be used by consumer debtors. The provisions are very complicated. Generally, an individual would not pursue this type. Don't attempt this without an attorney.

Chapter 12

This is typically for Farmers. It allows them to repay their debts of a period of time. It's roughly similar to Chapter 13.

Should I file for bankruptcy protection?