When bankruptcy seems like the only option

Before you declare yourself bankrupt, you should take time to carefully consider all of your options as there may be better alternatives in your situation. You may be able to pay off your debt over time by bringing in additional income, or you can try working with creditors to reduce your overall obligation.

Even something as simple as transferring your credit card balances to another card with a lower interest rate can be quite helpful. Before you take this strategy, however, you should be careful since this is just another loan that you have to worry about.

It will not solve your problems by itself, and if you continue with your current spending habits you could find yourself in an even deeper hole. Transferring to a lower interest rate can bring some relief, though, as part of a more comprehensive debt reduction program.

After going through all the alternatives, you may come back to bankruptcy as the best or only option for you in your current circumstances. This may be a bit discouraging for you, but it should not be a reason for despair.

You do need to make sure that your decision has been well researched and that you understand the basic process. That doesn’t mean you want to go through the whole process by yourself, since things are far too complicated for a layperson.

Congress passed a new bankruptcy law in 2005 which added additional restrictions that your lawyer should be familiar with. Despite what many may think, this law did not eliminate bankruptcy as an option, but it did make the process more complex. You need a good lawyer now more than ever. In addition, each state has its own laws regarding bankruptcy.

Some states may give you unlimited homestead exemption, which means you get to keep your house safe from creditors no matter how much your house is worth (or how much you owe).

The homestead exemption, by the way, protects your house from creditors if you file for bankruptcy. For example, if you’re trying to get rid of tens of thousands of dollars of credit card debt, your creditors cannot go after your house if your state has a homestead exemption. Of course, you still have to pay your mortgage, and you may still have to deal with foreclosure if you don’t pay your lender for your house payments.

Technorati Tags: bankruptcy, credit, Finance, financial, Personal Bankruptcy