An unforeseen medical emergency can force you over the edge of your budget.
So what do you do when your savings are gone, the credit cards are maxed out, and you feel as though you haven't a friend in the world? You find yourself in a lawyer's office talking about filing personal bankruptcy.
Once thought to be a stigma and only a last resort, more and more Americans are finding that the bankruptcy courts are on their side.
It is a way to start over fresh, and sleep peacefully at night.
There are several different types of bankruptcy.
Chapter 13 bankruptcy is for individuals that want to reorganize and get back on their feet.
Their debts are carefully reviewed by the bankruptcy court and a "pay-back" plan is devised.
The debtors secured debts such as homes and cars are paid back first, with unsecured debt such as credit cards paid last.
The plan can be anywhere from three to five years in length.
During this time, the debtor cannot enter into any credit obligations without the expressed approval of the bankruptcy court.
Additionally, the "black mark" of a bankruptcy will be on your credit report for 10 years.
Chapter 7 bankruptcy is also for individuals, but it wipes out your unsecured debt such as credit cards and medical bills.
The individual is allowed to keep certain exempt property such as your home and car, but other assets may be sold to pay off non-secured debts.
There are some items that cannot be discharged through a Chapter 7 bankruptcy.
These are child support, income taxes and property taxes, student loans fines and restitution imposed by a court for any crimes committed by the debtor and spousal support.
Even though these debts cannot be discharged, they must be listed on the bankruptcy paperwork for the courts to have true view of the financial situation.
Once again, you will have this information listed on your credit reports for 10 years.
Because filing a personal bankruptcy can be difficult, it is best to use a liscensed bankruptcy attorney.
However, you do not have to use an attorney.
You can act as your own defense in any bankruptcy case.
Forms for filing bankruptcy can be found online and there are several online paralegal firms that specialize in walking you through the process.
Just remember, if you do file bankruptcy, it is not a "get out of debt free card".
Your creditworthiness will be effected for many years.
I you file Chapter 13, you will not be able to get new credit for at least 3 years.
If you file Chapter 7, you will probably not be able to get credit for 2 - 3 years, and then it will be at a much higher interest rate.
If you have no other recourse, Bankruptcy Laws are written to protect you, the individual.
If you need to file, or even if you just need to find out more about it, trust a lawyer that knows what he/she is talking about and listen to what they have to say.
Most first consultations are free.