SHOULD I FILE FOR BANKRUPTCY?
If your bills keep piling up, and there is not enough money to pay for them all, bankruptcy could be an option.

But bankruptcy has some serious implications on your credit history. Before calling a bankruptcy lawyer, it's important to understand what you're getting into.

Bankruptcy is all or nothing

Although you can exempt certain debts like car payments or a mortgage as long as you keep paying them, when you apply for bankruptcy, all of your creditors must be included in your paperwork.

Bankruptcy is on your credit report for a long, long time

While other credit report negatives stay on your report for up to seven years, a bankruptcy can stay on your report for 10 years. It will affect your ability to obtain loans and rent apartments.

Chapter 7 versus Chapter 13

The two main bankruptcy filings for individuals are Chapter 7 and Chapter 13.

In Chapter 7 bankruptcy, you ask the court to completely wipe out your debts in exchange for your property. You can exempt certain items, like those needed for you to do your job, any equity you've built up in a car, and some states your house. The rest of your property is sold and the proceeds are used to pay off your debt. Usually in Chapter 7 you are free from your debts in three to six months.

In Chapter 13 bankruptcy, you receive a court-approved plan to repay your debts over 3 years (sometimes this is increased to 5 years). Creditors usually agree to accept less than the amount you owe them. Chapter 13 is the “pay back plan”, so you get to keep your home. You can't apply for Chapter 13 if your unsecured debts are greater than $250,000 and if your secured debts are greater than $750,000. If you don't comply with the plan, the court treats your bankruptcy as a Chapter 7 filing and can liquidate your property to pay your loans.

What are the alternatives?

Before deciding that bankruptcy is right for you, consider one of these alternatives:

• Make a budget and pay off your debts

  Our article on making a budget can help you determine if your money could be better allocated to help pay off your bills. If you can re-organize your cash flow, do so and put the money towards your debts. Call your creditors and discuss your situation and see if you can get a lower rate or more flexile pay-back options. Just talking to your credit card companies can make a big difference.

• Debt consolidation loan

  If you own a home, you could consider getting a home equity loan to consolidate your debt into one lower payment.

• Talk to a bankruptcy attorney

  If none of these options work for your situation, consider contacting a reputable bankruptcy attorney. There are many steps and critical timing and disclosure issues that are important to discuss and address with an expert. There have been many cases of fraudulent bankruptcy services where people have lost their homes as a result of poor bankruptcy filings. Bankruptcy "mills" can include both high-volume lawyers with their own practices to low-budget bankruptcy preparers. Protect yourself and your assets.

Even if you do file for bankruptcy, remember that bankruptcy can be a positive move, as long as you learn from the experience and take steps to better manage your money in the future.