Personal bankruptcy filing gives you relief from creditors, and wipes out some debts or allows you to repay them in installments while receiving court protection. It is certainly appealing to think that you will no longer be harassed by creditors calling you at all hours of the day and night. However, if and when to file for bankruptcy are not decisions to be taken lightly. Personal bankruptcy filing can have huge impacts on your life, ruining your credit score, making it difficult or impossible to maintain bank accounts or credit cards, buy or rent a home, and get insurance, and could even compromise your ability to get a job. Moreover, bankruptcy law changes in the US as of October 2005 have made it ever more difficult to file for bankruptcy. This article gives some basics about bankruptcy filing, and assuming you have taken the difficult decision of going ahead with the process, it provides some answers to the question – how do I file for bankruptcy ?

Should I file for bankruptcy ?

Bankruptcy filing should be seen as a last resort, and should only be undertaken after exploring less drastic options such as credit card settlements, seeking credit card debt forgiveness, or otherwise trying to balance your budget. Even then, you should use a bankruptcy attorney to help you negotiate the complexities of declaring bankruptcy. The bankruptcy attorney fees are well worth it.

Chapter 13 vs Chapter 7 bankruptcy

Personal bankruptcy filing comes in two forms, Chapter 7 and Chapter 13. They both have to be filed in federal bankruptcy court, but have different preconditions. As soon as you file for bankruptcy, a restraining order automatically comes into effect which prevents creditors from harassing you any longer. One precondition to personal bankruptcy filing is that you must obtain credit counseling from an organization approved by the government within six months prior to the filing. You also have to fulfill a "means test" to demonstrate that your income is below a certain amount that varies from state to state in the US.

In 2005, US bankruptcy law changes underwent a major overhaul that allowed people with steady incomes to file under Chapter 13 rather than Chapter 7. Chapter 13 bankruptcy rules allow people with steady incomes to hold on to some of their property, such as a mortgaged home or a car that might otherwise be lost to the bankruptcy proceedings. Under Chapter 13 bankruptcy rules, you have to agree to a court-approved repayment plan where a portion of your expected future income goes toward paying off your debt, but in return you get to hold on to your property. The debts you have to repay include unpaid school loans, car loans, mortgage payments, child support payments, and possibly other debts.

Chapter 7 bankruptcy effectively erases most or all your debts. This is known as chapter 7 bankruptcy discharge. A court-appointed trustee will collect your non-exempt property and sell it, with the proceeds being given out to your creditors. However, some debts still must be paid. These include child support and spouse support. You risk losing all your property, including property that you may have transferred to evade the loss, as some of these transfers can be nullified. But you do not have to file a repayment plan with the court, unlike in Chapter 13.

Bankruptcy filings, whether for chapter 7 or chapter 13, are administered by a trustee who is appointed by the US department of justice. Although bankruptcy lawyers are not required, you may want to hire one and shell out the bankruptcy attorney fees rather than trying to negotiate the complicated paperwork by yourself.