When to File Personal Bankruptcy

Filing for personal bankruptcy is a big decision and one that will affect your life for years to come. Before you file, you need to know whether the consequences are worth the consequences of your debt spiraling out of control. Debt ignored is even worse, though.

Personal bankruptcies, unlike business bankruptcies, apply only to the individual filing and are personalized to the circumstances of that individual and the creditors involved. With personal bankruptcy, you have the option of filing Chapter 7 (liquidation and absolvement) or Chapter 13 for repayment.

Personal bankruptcy can help you to deal with your debt, but there are things outside of its realm of control as far as the law is concerned. Personal bankruptcy cannot erase all types of debt, such as child support and court-ordered payment or criminal fines. Often, tax debt may be exempt as well, though an attorney can negotiate these. Any debt you create after the bankruptcy is filed cannot be included in the bankruptcy and any collateral you've used to secure debts that are covered in the bankruptcy is usually forfeit.

On the plus side, a personal bankruptcy can make your life easier and provide you with a new start. Excessive debt is heavy and stressful and filing for bankruptcy can take a lot of that load off.

Most of your debts are discharged after a personal bankruptcy, so you no longer have to stress about them or worry about the phone calls or harassment from your creditors. Bankruptcy can prevent your house or car from being taken and utilities that might have been turned off will be restored. Your attorney can ensure you get the most financial benefit allowed by law.

If your credit is already virtually ruined, bankruptcy can actually help it restore, since a personal bankruptcy is on your credit, but the bad credit from before is not. If you work, manage your finances, and pay off your leftover debts in a timely manner, your credit will build back up quickly and you'll likely be able to begin using it again within a few months of the bankruptcy discharge.

Personal bankruptcy remains on your credit for ten years and you will be unable to file for another bankruptcy for four to eight years, depending on the type of filing you made. Filing for bankruptcy is a long-term decision and one that requires a lot of thought and consideration.