Understanding Personal Bankruptcy

Do you feel like your drowning in debt? Have you turned the ringer off on your phone in order to avoid the calls from the collection agencies? Are your creditors threatening to sue you? Are your wages being garnished? If you answered yes to any of these questions, you might want to consider filing personal bankruptcy.

Bad things happen to good people, and if you experience a sudden loss of a job, business failure, or illness may be a good option. However, if you spend too much, you may find yourself in a worse situation than if you never filed for bankruptcy, and will be barred from obtaining any additional relief in bankruptcy for at least 6 years. Some have said that the magic of bankruptcy is that the very second a bankruptcy petition is file stamped by a court of law, an umbrella covers the personal property of a debtor. Sadly filing for bankruptcy carries a stigma, often times people consider those that file bankruptcy a failure, admitting that they did not property plan financially

Before you rush to the phone and call a bankruptcy lawyer, there are something's that you want to consider:

Let's begin with the different types of personal bankruptcy that is available.

Chapter 7 this is the bankruptcy provision most frequently used by individuals and involves the complete liquidation of a debtor's property to pay creditors and wipes out the remaining debts. The debtor can retain certain property that is exempt under their choice of Federal law or State law, including limited equity in a car and home.

In Oct. 2005, significant changes were made to Chapter 7, which made the process longer and more expensive. One of the major changes is the "means test", which determines whether you can use a Chapter 7 filing or be forced to file a Chapter 13 and repay some of your debts over five years.

How the "means test" is used to determine if you are "abusing" the umbrella of protection that bankruptcy affords-

It begins with averaging the debtor's income from every source during the preceding 6 calendar months, and if married, averaging the spouse's income during the same period. The resulting average is called Current Monthly Income.