A lot of people are running into financial difficulty these days – especially with a lot of major corporations going through layoffs and buyouts. What this means is that a lot of people find themselves suddenly unemployed and it may take some time to get another good paying job. When financial difficulties come, and they stay around for awhile, the thought of declaring bankruptcy will come into some people’s minds – especially when the debt starts getting out of hand, with no light at the end of the tunnel. Here are some thoughts about bankruptcy that will help you to make that important decision of “Should I, or shouldn’t I?”

What Declaring Bankruptcy Means

Declaring bankruptcy is basically an indication that you are not able to pay the debts that you have legally incurred. For this reason, and the legal examination of your bills and the way you handle your finances, as well as the humiliation involved, makes it a rather stressful process. It means that you will have to seek credit counseling, too.

Because so many people are attempting to get out of their debts, for one reason or another, Congress has passed an Act, which was signed by President Bush in 2005, to place certain limitations on declaring bankruptcy and who can do it. This Act, called the “Bankruptcy Abuse and Consumer Protection Act,” seeks to make it more difficult to declare bankruptcy and to help the creditor to receive a higher degree of compensation. This Act called for higher bankruptcy filing fees, credit counseling, and making it more difficult to file under Chapter 7, making it necessary for more people to file under Chapter 13 bankruptcy. Many other details are also covered in the Act that place further limitations on bankruptcy.

Two Types of Bankruptcy

Filing under a Chapter 13 bankruptcy means that there is a “reorganization” of your finances, and it does mean that you do repay much of your existing debt. You are required to make a plan that enables you to pay back a lot of your existing debt in the next three to five years. This means the sale of some of your properties (or all of them) in order to satisfy the debt. It is the bankruptcy Trustee who will make the decision as to what needs to be sold – not you.

Filing under a Chapter 7 bankruptcy means, once again, that the various assets that you do currently possess will need to be listed, by requiring you to take a “means test,” and then a decision will be made as to what you can keep and what you cannot. Everything will fall under an “exempt” or a “non-exempt clause.” You keep the “exempt” items, and lose the rest. The “non-exempt” items will either be sold, or you will be required to pay them back. Some things that are not exempt are child support and education costs.

The cost for declaring bankruptcy can run up to about $1,500 for personal bankruptcy. This includes the filing charges, and the lawyer’s fees. The fees, however, are dependent upon how much of an income you have, and it will vary from one state to another. The process of obtaining a legal declaration of bankruptcy, assuming everything is in order, can take up to six months.

After The Declaration Of Bankruptcy

Once you have obtained a legal declaration of bankruptcy, all of your creditors know where they stand. For some, the debts are discharged, and others have received what will be paid to them, or they know what will soon be coming to them. However, it also means that your credit rates have been destroyed, and it will take years to fully repair it. The bankruptcy is placed on your credit rating and will remain there for the next ten years.

What Other Options Are There?

If you are now in a position where you need to consider bankruptcy, then there are some other options that may yet be available to you.

1. Get Credit Counseling

By this, it means work through a debt negotiation company who will take your case to the various creditors in an attempt to work out some kind of a deal. This could be a good step in the right direction because creditors know that if you declare bankruptcy, then they may not get anything. Oftentimes, they will work with you.

2. Renegotiate Your Loans

Once again, by talking with your creditors, you may be able to renegotiate for better loan terms. This could give you a greater leeway financially that could provide just enough of an edge to enable you to get through it with having to declare bankruptcy.