Bankruptcy:

Before you file for bankruptcy, you need to understand exactly what bankruptcy is and what it offers. For many people, choosing to file for bankruptcy is a realistic, intelligent choice. The immediate benefit of filing is that your current creditors cannot pursue further action against you, and many of your debts are likely to be written off. On the other hand, although it is easy to think of bankruptcy as a way of escaping from paying off your debts, it is actually quite a bit more complicated.
There are several types of bankruptcy, and you need to know which bankruptcy process would be best for your situation. You also need to think hard about whether filing for bankruptcy makes economic sense or if there might be other ways to get your life back on track.

Understanding Bankruptcy:

According to the United States Bankruptcy Courts' Web site, the primary purposes of bankruptcy laws are:
In general terms, bankruptcy is a process regulated by federal law which provides debtors-individuals and corporations-with a legal way of seeking relief from their creditors. If you file for bankruptcy, the court protects you from your creditors and releases you from the need to payoff many, but not all, of your debts. But the court can also decide to sell property that belongs to you and use the proceeds to payoff some of the money you owe. Selling property, or assets, to payoff debts is called liquidation. At the end of the bankruptcy process, those debts that are eligible are canceled, or discharged, meaning you no longer have any liability to pay them.
Bankruptcy is essentially a form of protection. The degree of protection it provides depends on what Chapter you file for and the type of assets you own.

Here are some things that bankruptcy is not:

• dishonest
• the coward's way out
• a way of escaping from the consequences of illegal behavior

There are several kinds of bankruptcy. Some apply to individuals, while others are more suited to businesses. The different kinds of bankruptcy are commonly referred to by citing the chapter contained in Title 11 of the U.S. Code. If you are filing as an individual or as the sole proprietor of a business, you may file for either Chapter 7 or Chapter 13. Other types of bankruptcy, Chapter 11 and Chapter 12, are more commonly used by businesses or large companies, and offer fewer advantages for individuals. In all cases, there are certain criteria you have to meet to be eligible to file for each particular type of bankruptcy. This book provides information about the most commonly used bankruptcy filings; that is, individuals filing either Chapter 7 or Chapter 13. Note Personal bankruptcy can also be referred to as consumer bankruptcy and this terminology is probably more common in Canada. Although Canada has the equivalent of Chapter 7 and Chapter 13 personal bankruptcy, they are referred to differently and have somewhat different requirements. The filing process
is similar, and much of the information in this book is useful for anyone, but Canadian information will be flagged when it greatly differs from US bankruptcy law. You should also read Chapter 18 for an overview of the Canadian system.
Filing for Bankruptcy.

When you file for bankruptcy, you are actually filing a bankruptcy petition with the court. A petition is a written request, or appeal, to an authority, which asks for certain actions to be taken. A bankruptcy petition is a request to be made bankrupt and have your debts discharged (subject to certain exemptions and conditions, which will be described with greater detail in the next chapters.)

Making the Decision to File. When making your decision to file it is a good idea to start by looking carefully at your financial situation. You will need to answer honestly the following questions about your personal situation.

• What exactly has caused your financial crisis?
• What do you hope to get from filing for bankruptcy?
• What do you expect life after bankruptcy to be like?

Your answers will give you a clearer idea of whether filing for bankruptcy is likely to help you at this time, or whether you should consider filing at a later stage if things do not improve.

What Exactly Has Caused Your Financial Crisis?

If you have been spending more than you earn, you will be in debt. If you cannot find a clear reason for your financial problems, you need to take a hard look at your current spending patterns. It is essential that you are honest with yourself.
If you have problems that going bankrupt will not solve-perhaps a serious drinking or drug problem, or reckless spending-you need to address those as well. Filing for bankruptcy only helps alleviate your debts, so if other serious problems exist, be prepared to ask for help elsewhere, and if necessary, seek medical help or counseling.

Signs of Financial Crisis:

For many people, the difficult part of the process is knowing when they have reached a point where filing for bankruptcy is their best option. Only you can make the final decision on this matter, although you should consider professional advice to help you make up your mind if you are unsure. The following are some signs that may indicate your financial problems cannot be solved easily.

• You never have enough money to pay your regular bills on time.
• You pay bills at the last minute, or not at all.
• You have one or more credit cards with a large amount of accumulated debt.
• You are not able to meet more than the minimum payment on your credit cards.
• You use your bank overdraft to pay for regular bills, or normal
expenses like food.
• You have no idea just how much you owe.
• You get calls or visits from debt collection agencies.
• You have your requests for credit denied.
• You get further into debt each month.
• You have to borrow from friends and family to pay your bills.

What Do You Hope to Get from Filing for Bankruptcy?

It is undeniable that some people choose to file for bankruptcy without much thought, and some have even been accused of using it as a rather dishonest kind of financial planning. Recent changes in bankruptcy laws have made it more difficult to escape all your debts simply by filing for bankruptcy (especially Chapter 7). In Canada, there have also been fairly recent legal changes that have made it harder to use bankruptcy inappropriately.

If you are looking to use bankruptcy as a way of starting a new life, completely stress free and without any financial issues at all, think again. Bankruptcy can affect you in many ways:

• Emotionally-the stress of dealing with it, and life afterwards, can be considerable. Marriages and relationships frequently suffer as a result of filing for bankruptcy.

• Economically-you will still have payments to make, especially if you file for Chapter 13 (more on that later). You will have to budget very carefully for the long term.

• Getting credit-for at least 2 years, and in some cases longer, you will find it hard to get good credit, and may have to pay higher interest rates. Your bankruptcy is a matter of public record and will appear on your credit report for some time.

What Do You Expect Life after Bankruptcy to Be Like?

When you are in dire financial straits, it is tempting to think no further than actually filing Chapter 7 or Chapter 13 (or the Canadian equivalents), without worrying about what will happen next. After all, surely anything is better than the stress of dealing with angry creditors or unpaid bills! Do not fall into the trap of thinking that filing for bankruptcy is going to make life wonderful. Remember that there are reasons why you reached this point, and they may still be there. So first and foremost, be realistic.

It is important to realize that the effects of becoming bankrupt are long-lasting, and can have a negative effect on your life for quite a while. While you may be relieved of many of your financial responsibilities, filing for bankruptcy does not necessarily provide a completely clean slate. You may have to survive on a smaller income than you are used to and you will find it difficult to get credit.