Most people perceive bankruptcy as the ultimate life failure. Unfortunately, for millions of U.S. citizens, it is the last alternative available to save their worldly possessions. Personal bankruptcy can stir up many emotions and leave people feeling ashamed. Worse yet, it can leave a financial black mark on credit reports for ten long years.

Before filing personal bankruptcy, it is important to seek out alternatives to determine if better financial options exist. Sometimes, debt consolidation, debt settlement, credit counseling and budgeting can achieve the same results without the credit chaos associated with bankruptcy.

If bankruptcy alternatives cannot solve financial problems, debtors should take time to become informed about the bankruptcy process. New bankruptcy laws enacted in 2005 have made filing considerably more difficult and expensive. Debtors are required to undergo credit counseling from an approved U.S. Trustee agency and undergo the ‘means’ test to determine the amount of debt to be repaid.

The Bankruptcy Abuse Prevention and Consumer Protection Act was implemented to help consumers from subprime lending tactics and to protect creditors from people who were abusing the system by filing bankruptcy to write off frivolous credit card expenses. BAPCPA provisions require all Americans filing for personal bankruptcy to pay back at least a portion of their debts.

Six bankruptcy chapters exist including: Chapter 7, 9, 11, 12, 13 and 15. Personal bankruptcy falls under either Chapter 7 or Chapter 13.

Chapter 7 is often referred to as ‘liquidation bankruptcy’ because debtors are required to turn over non-exempt property to a bankruptcy trustee. The Trustee supervises the sale of property and funds are used to pay outstanding creditor debts. Remaining balances are written-off and debtors have a clean financial slate.

Under chapter 13 bankruptcy, debtors are allowed to retain their property, including automobiles and real estate. However, a repayment plan must be submitted to the bankruptcy judge for approval.

Chapter 13 payments generally extend for two to three years and can place significant financial restraints on debtors. One unexpected expense can cause debtors to fail out of bankruptcy. When this occurs, debtors lose court protection and creditors can commence with collection actions.

Bankruptcy is governed under federal law. However, each state establishes bankruptcy policies. If planning to file bankruptcy you will need to adhere to the laws of your state. Petitions must be submitted to the district where you reside and approved by a bankruptcy judge.

When possible, attempt to obtain a repayment plan with creditors and avoid filing chapter 13 bankruptcy. Depending on the circumstances, creditors might reduce outstanding balances or interest rates. Increase your chance of successful negotiations by offering an upfront cash payment and reasonable repayment plan.

If bankruptcy is the only feasible option, retain the services of bankruptcy attorneys well-versed in state and federal laws. Doing so ensures proper documents are filed and improves your chances of having the bankruptcy court approve your petition.