You may have reached a point where you are considering filing for bankruptcy. For many, this is a huge step that causes some fear and distress. However, a bankruptcy filing can offer relief where it appears none exists, and may allow you to change your circumstances dramatically. There are a few things you should consider before taking this leap.

One important step is deciding whether or not to file. A bankruptcy works well for those people who have substantial amounts of unsecured debt, such as credit card or medical bills. Certain types of filing will allow you to keep some of your personal property, such as your house or car.

This will not, however, relieve you of obligations such as spousal support, student loans, and child support. Also, this will appear on your credit report and reduce your score. You have to decide if the ramifications of doing this are less than the benefits you will receive. If you are having your wages garnished, receiving a large amount of collection letters and calls, or are getting sued, filing may help you more than it will hurt you.

The next step is to determine the type you will file. As always, you should check with a lawyer to be sure you are making the best decision possible. There are certain circumstances where one type would be more beneficial than the other.

There are two different types of filings, a Chapter 13 and a Chapter 7. The Chapter 7 will discharge unsecured debts after the bankruptcy. The Chapter 13 creates a payment plan whereby you pay what you can afford on your debts for a set period of time. Chapter 7 liquidates a large part of your assets, while Chapter 13 is considered to be a reorganization in which you do pay back some debt while being allowed to retain some property. A significant factor in determining the type of bankruptcy to file is the personal property you have, especially if it has accumulated equity.

A Chapter 7 has limits to the amount and type of personal property you can retain. State laws vary, so check with your lawyer. Predominantly, you can only keep items such as furnishings, tools for work, and vehicles or homes that fall under the equity limit. Other assets besides these will be used to pay off reduced amounts to your creditors.

In a Chapter 13, you can often keep all of your property because you make regular payments from your income for a period of time. If you have a late model vehicle that you own outright and want to keep, this would likely be the best choice for you. In some cases, you can add a car payment to your payment plan, allowing you to make one large payment each month versus keeping track of several bills.

A bankruptcy filing also immediate puts into effect an automatic stay, which stops lawsuits, foreclosures, garnishments, and often even utility shut-offs. Some of these may be reinstated, but this does give you some breathing room. Many times bankruptcy is a life saver and it reduces the stress of collection calls and late payments, and allows you to make a fresh start in life.

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