Bankruptcy provides a legal means to get a financial fresh start. If you are overwhelmed by debt, you may be thinking about filing for bankruptcy. Bankruptcy has serious consequences on your credit rating, however, so the decision should be made carefully. The information included here can help you determine how to know when to file for bankruptcy.

Bankruptcy stays on your credit report for up to 10 years; it is not a step to be done until all other avenues are exhausted. You'll want to understand what happens when you declare bankruptcy, and seek professional advice before beginning the process.

The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

• Bankruptcy is a legal process, managed in federal court, that allows you to cancel or restructure your debts. When you declare bankruptcy, you go to court to obtain protection from creditors.

1. A Chapter 7 bankruptcy, requires you to sell your assets, with the exception of some personal items and a state specific exemption, and use the proceeds to repay your creditors. Debts that can't be repaid are discharged.
2. A Chapter 13 bankruptcy imposes a repayment plan that modifies the terms of your existing debt, and specifies minimum payments that must be kept current.

• Although you'll make the final decision with expert advice, some indications that bankruptcy may be a good option for you are:

1. You have a large number of unpaid bills, and no way to pay them.
2. You own assets that may be seized by creditors.
3. You have a job with wages that may be attached by companies you owe money to.

Before settling on bankruptcy, take a good look at your expenses. Draw up a budget that allows your basic needs and your bills to be paid for, removing any luxuries. If it is possible to pay off your debts without filing for bankruptcy, considering tightening your belt buckle and doing so. You may also want to contact creditors to find out if debt may be negotiated before you resort to bankruptcy.

• You are required by law to seek pre-filing credit counseling with an approved Department of Justice credit counselor before filing for bankruptcy. They will work with you to develop a repayment plan that you can have accepted by your creditors without going to court.

• Most bankruptcy attorneys will have an initial meeting with you, free of charge, to assess your case. They will be able to advise you whether bankruptcy is a good option for you, and whether Chapter 7 or Chapter 13 would be more appropriate for your situation.

• Knowing when to file for bankruptcy can be difficult. If your unpaid bills have piled up to the point where you are considering it, you'll need to talk to a credit counselor and meet with a bankruptcy attorney to assess your options.

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