People who file bankruptcy are ashamed to have to do so, and most avoid it until they have no other choice. I think it's easier and more acceptable today than it used to be years ago because of how many people have done it and because of the enormous amount of press it has gotten the last few years.
People who filed bankruptcy in 2005 when the economy was booming might very well have overspent opulently, but in 2010 the vast majority of bankruptcies are exactly what PACKERSFANJC described so well -- people victimized by the bad economy, unexpected medical bills etc. "Saving for a rainy day" and "living within your means" and "not buying anything on credit that you can't immediately pay off" all is sound financial advice, but that type responsible living flew out the window for many when the economy crashed, forcing incredible credit spending etc.
The recession, lagging housing market and unemployment rate will all contribute to the rise in personal bankruptcy filings. This year there will be an additional factor contributing to that number.-- the BP/Transocean oil spill has caused unprecedented damage to the waters and beaches of the Gulf Coast region.
Chapter 7 an Option for Many
Chapter 7 is often referred to as "Total Bankruptcy." Under this chapter, most unsecured debt, which includes debt like credits cards and medical or hospital bills, is discharged, meaning that it does not have to be paid back. There are, however, certain debts that cannot be discharged in a Chapter 7, or any other bankruptcy, including child support and other court ordered obligations, and most student loans, among others.
Many people fear that they will lose their home or vehicle after filing for bankruptcy. But, if you stay current on your mortgage and car payments, it is possible to keep this property. In fact, eliminating other unsecured debt can be one of the best ways to help you stay current on your mortgage.
How Chapter 13 Works
While Chapter 7 might be the best approach for someone who has lost a job and has no regular source of income, the truth is that not everyone will qualify. For those that don't, particularly those with higher incomes, significant assets they would like to keep, or those that have some moral objection to discharging debt, Chapter 13 may be the best approach.
Under this chapter, you keep your property and agree to pay back your creditors over a three to five year period. The program is supervised by the court and typically debtors end up paying creditors a portion of what is owed. After the conclusion of the payment plan, any remaining unsecured debt is discharged.
Benefits of Working With an Attorney
Fears and misconceptions of bankruptcy keep some people from filing and push them toward less effective means of wiping out their debts. These alternatives can often add to their problems instead of solving them. Debt relief or debt consolidation companies can charge substantial up-front fees; using money that should be used to pay off your creditors. In the end, many people find that these alternatives are more costly and do little to address their debt issues and the underlying causes of the problem.
Also, in both Chapter 7 and Chapter 13, people filing receive the protection of an automatic stay, which is not available when pursuing alternatives to bankruptcy. This stops all collection activity, including current lawsuits, repossessions or foreclosures, and provides debtors with time to get their finances in order.
Whatever path you decide and whatever decision you make, bankruptcy can be a straightforward yet complex process. Working with an experienced attorney is the best way to determine which approach is best for you.
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