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The federal government makes available a way for those who are struggling under the weight of impossible debt to have a new start by freeing them of their financial burden. A bankruptcy isn't easy, but can make it possible to live a normal life again, freed of the heavy burden of crushing debt. When you are facing what seems like an intractable fiscal problem, filing bankruptcy might be the answer.

There are any number of reasons why you may find yourself deeply in debt. Some of the most common are losing a job, hospital bills and spending beyond your means, usually with the "assistance" of credit cards. Filing bankruptcy doesn't mean that you are an irresponsible person, simply that circumstances beyond your control have led to an unmanageable level of debt.

Being deeply in debt can be utterly miserable. You begin to fear opening your mailbox and become anxious every time the phone rings. It seems that no matter much you pay on your credit cards, it just isn't enough and the balance keeps growing. Your credit suffers and it seems like there is no way out.

By filing bankruptcy, you gain a chance to get a fresh start by reducing or eliminating your debts. With out of control debt, it becomes impossible even to lead a normal life. However, something which bankruptcy will not permit you to do is to avoid paying debts which you are capable of paying.

This means that some of your money and perhaps property will be handed over to your creditors in a fashion considered fair by the U.S. Bankruptcy Court. The court will decide what you may keep and what will be sold to help settle your debts. You might also have to pay off debts with cash on hand if your liquid assets are over a certain predetermined amount.

Bankruptcies are sorted into types known as chapters. These different chapters are designed to address different situations which are varied enough to justify a different approach. The most common types filed are chapter 7 and chapter 13 bankruptcies.

Chapter 7 bankruptcy is called a "straight bankruptcy" and results in all debt which cannot be settles through the sale of your assets being written off. Chapter 133 bankruptcy, by contrast organizes your debts into a payment plan which fits your situation. In either case, the calls and mail stop flooding in and you can breathe easier. Once you notify a court that you intend to file for bankruptcy protection, the calls will stop, as will other collection efforts including legal actions, evictions, foreclosures and repossessions - the relief is almost instant.

Other bankruptcy chapters are target for specific needs, such as chapter 11 for businesses and chapter 12 for farmers. These are aimed to eliminate certain types of debt.

Filing bankruptcy can be complex and is a serious business, You should always work with an attorney who specializes in bankruptcies if you are considering this move.

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The reasons to avoid bankruptcy.

The number of people filing for bankruptcy in 2006 was 617,660 - in 2007 that number increased to 850,912. Bankruptcy is turning into the most convenient option for people who are facing severe financial problems. However, strikingly, the majority of these people are ignorant of two very significant factors. One, bankruptcy is not the best solution for all people who are burdened by debt. Two, bankruptcy has long term consequences that can have a negative effect on your life forever.

What is bankruptcy and why you should avoid it

The definition of bankruptcy is a federal court process that exists to help businesses and consumers repay their debt or eliminate their debt under the protection of bankruptcy court. The term bankruptcy comes from the Italian work 'banca rotta' which means broken bench. District courts take care of bankruptcy filings and procedures under the Federal Bankruptcy Act.

Types of Bankruptcy

There are eight chapters of the Federal Bankruptcy Code. These consist of Chapter 1, Chapter 3, Chapter 5, Chapter 7, Chapter 9, Chapter 11, Chapter 12 and Chapter 13. Chapters 7 and 13 are the most popular bankruptcies filed by debtors.

Bankruptcy Drawbacks

The following are a few drawbacks to filing for bankruptcy:

• Credit History: Bankruptcy is one of the worst things that can happen to your credit history. It stays on your report for up to 10 years and stays in court records for 20 years. The damage it creates goes further than just your credit report; it severely limits your ability to receive a loan and employment as banks and employers typically judge you by your credit report.
• Repossession: Discharging a bankruptcy can cause you to lose valuable assets and money.
• Social status: Personal bankruptcy can ruin your social status.
• Business reputation: Businesses that file for the protection of bankruptcy stand to lose more than their reputation, they also lose all chances to grow their business. Their credit rating will deter banks from qualifying them for future business loans.
• Financial: The most serious consequence to bankruptcy is the closing of all your bank accounts, credit cards, and more. Anything you are currently buying through financing or leasing, like your car, will be returned to the owner.
• Life conditions: People who declare themselves bankrupt will find it difficult to buy a home, rent an apartment, get insurance, or buy a car. These conditions are extremely difficult in today's world.

Because of these reasons and more, it is worth it to avoid bankruptcy for a more secure future.

Why do people file for bankruptcy?

• Unemployment: The sudden loss of a job definitely has an impact on the decision to declare bankruptcy. In order to keep a certain standard of living, people who are unemployed are more apt to accept more debt without the ability to pay it back.
• Divorce: When a couple separates or divorces, one or both parties typically tends to suffer financially. This seems to also be directly related to the rise in bankruptcy.
• Credit Cards: There is a direct correlation between the number of accounts used by an adult and the rise in the rate of filing for bankruptcy. The more cards that a person has, the more debt will be accrued.
• Debt-income ratio: This ratio is the percentage of a consumer's monthly gross income that goes towards paying debts. As this rate rises with the general public, the filing rate for bankruptcy has also risen.

Common Myths About Bankruptcy

Bankruptcy seems like an easy way out of debt, but the reality is a lot worse than most people realize. Following is a list of common bankruptcy myths:

• You will eliminate all debt: Bankruptcy will not get rid of all your debts. There are some that cannot be discharged in bankruptcy like taxes, child support, alimony, student loans, etc.
• You will have a new beginning: Bankruptcy does not put you back at square one - it actually puts you at a negative beginning. As bankruptcy will be reflected on your credit report for 10 years, creditors will not be able to offer you credit terms - and if they do, they will cost a lot in interest.
• You can still keep some accounts out of bankruptcy: There are very strict bankruptcy laws that include stiff punishment if you try to hide or not include any accounts. The only ones you don't have to include with filing for bankruptcy are ones that you will have paid off before you file.
• It's easy to file for bankruptcy: Filing is extremely time consuming, as well as expensive. Recent law changes also make it much more difficult to file as well.
• Debts are removed for free: Bankruptcy makes you debt free only by liquidating your assets - which could mean losing your home, car, etc.

Is debt consolidation better than declaring bankruptcy?

Debt consolidation can actually make you debt free with more benefits. It can be a permanent solution to your burdened finances, while bankruptcy only provides temporary relief. Consolidating your debt can reduce your monthly payments by 40-60%. Your credit report will be repaired as soon as your debts are paid for - not for the next 10 years like with bankruptcy. You will also be free from the hounding of creditors. In short, bankruptcy should only be chosen when there is no other choice. Debt counselors can help with these decisions as well.

For more information on avoiding bankruptcy or if you need immediate debt relief please visit debtrelief.us.com Use the debt calculator to see how much debt you can eliminate.

Thinking of filing bankruptcy? Before you do, pull out your calendar and the phone number for your bank. The day you choose to file could save you (or cost you) thousands of dollars.

Here's why: the assets that you own on the day you file are the only assets that are considered in your case. That means they're the only ones that creditors may be able to get to. Some assets pretty much retain the same value during the course of a month, like your car or your home furniture, for example. But the money in your checking account tends to fluctuate day to day. Right after you deposit your paycheck, your account has a higher balance. For a brief moment, it looks like you're flush, right? Then comes time to pay all the bills. You start writing checks for rent, electric, cable, groceries, gas, health insurance, and all your other regular expenses. Pretty soon those checks clear and your account is back to that minimum balance again.

That's the day you want to file your bankruptcy - when all your bills for the month have been paid, and your account balance is at its lowest point. It doesn't matter if you're going to deposit your next paycheck the day after filing bankruptcy: It is the balance in your account on that day that you file that counts as your asset. And not all assets are exempt. Research your state's particular wage exemption laws, or consult with an experienced bankruptcy attorney in the state where you'll be filing your petition. The type and amount of wages in a bank account which are exempt from creditor attachment varies from state to state.

No matter which state you live in, it's always a good idea to file your bankruptcy when your bank account is at its lowest balance. And here's one last thing to keep in mind: just because you wrote those checks doesn't mean your account balance reflects it. So don't go by what's written in your checkbook register - go online or call your bank to get an exact account balance before you file your bankruptcy petition. This simple little strategy can save you thousands of dollars that might otherwise go to your creditors in bankruptcy.

Lisa Torelli McCue is a Florida licensed attorney who practices in the areas of bankruptcy and personal injury law. She provides a free initial consultation for those in South Florida who are considering filing bankruptcy. Call 954-267-9377 or fill out an online form at her website.

http://www.mccuelaw.com/