Thousands of people file bankruptcy on any given day within the U.S. As more struggle with chronic unemployment or lose their home to foreclosure, chances are personal bankruptcy filings will continue to increase.

Before deciding to file bankruptcy, debtors should take time to weigh the pros and cons of this life-altering event. Not only does bankruptcy cause harm to credit scores that can take years to overcome, it also is costly to seek debt relief through the Federal Judiciary courts.

Although individuals are not required to hire a lawyer, going it alone is usually not the best idea. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act. BAPCPA guidelines are strict and debtors who do not follow protocol can have their petition denied or later fail out of bankruptcy due to non-compliance.

People are often under the impression they can file bankruptcy and have all debts removed. This is not the case at all. Under BAPCPA, debtors are required to enter into a Chapter 13 payment plan which can extend up to 5 years. There are instances when people can enter into Chapter 7, but even then they must liquidate assets to repay a portion of debts.

The first step of filing bankruptcy involves locating a lawyer. It can be beneficial to consult with 3 or more lawyers to find one that\’s a good fit. The legal process can be somewhat unnerving, so take time to find an attorney that puts you at ease and explains things so you know exactly what is expected.

Your lawyer will require financial records including income statements, bank account balances, financial portfolios, real estate holdings, 2 years\’ tax returns, list of outstanding debts, and list of fixed monthly expenses.

Debtors are required to undergo the \’means\’ test to determine which bankruptcy chapter they qualify for. Although mathematical calculations are complex, essentially the means test compares debtors\’ income against state median income levels. Those earning equal to or greater than normally must enter into Chapter 13, while those earning less may qualify for Chapter 7.

When Chapter 13 is required, lawyers prepare the petition and file through bankruptcy courts. Soon after, debtors attend a 341 creditor meeting to discuss a payment plan with creditors. Once all parties are in agreement they appear in front of the presiding judge to present the plan.

Within 30 days of the creditor meeting, petitioners are required to remit payments to the bankruptcy trustee. Debts are paid according to priority through the court. Most often, Chapter 13 payments are self-pay, but the court may require direct deposit via payroll deduction.

If debtors do not comply with bankruptcy payments, both creditors and the Trustee can request the petition be dismissed. Failing out of bankruptcy is a double-whammy because debtors lose protection of the court and their credit takes a harder hit. Not to mention, creditors can commence with collection action at the point where they left off prior to the automatic stay.

Many people are filing bankruptcy to stop foreclosure. While it\’s true an automatic stay goes into effect once the petition is filed through court, mortgage lenders can file a motion of relief requesting authorization to remove the stay against real estate.

Another stipulation of BAPCPA is all petitioners are required to enroll in credit counseling through an agency approved by the U.S. Trustee. Although most agencies assess fees using a sliding scale based on earned income, debtors are responsible for counseling costs.

While bankruptcy can provide financial relief through reorganization of debts, petitioners must be able to comply with payment plans. Those who cannot could potentially be in worse financial shape than when they started.

Debtors should take time to research bankruptcy alternatives such as debt consolidation or debt settlement. Oftentimes, credit counselors can help debtors devise payment plans without the need to file bankruptcy.

Author Bio: Simon Volkov is a California real estate investor who has written extensively on personal finance, foreclosure prevention, and how to file bankruptcy. He offers an expansive personal bankruptcy article library to help debtors make informed choices at www.SimonVolkov.com.

Category: Finances
Keywords: file bankruptcy,fail out of bankruptcy,chapter 13,chapter 7,avoid foreclosure,personal bankruptcy