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Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. People who follow the bankruptcy rules receive a discharge — a court order that says they don't have to repay certain debts. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of January 2005, the filing fees run about $185 for Chapter 13 and $200 for Chapter 7. Attorney fees are additional and can vary. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car that they otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off a default during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts. Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. You can receive a discharge of your debts through Chapter 7 only once every six years. Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it. You will have to assess your financial situation to determine if bankruptcy is the solution to your problem. Bankruptcy should only be considered as a last resort when all other attempts to resolve your debt problems have been exhausted. To get a handle on your finances, you should request a free credit report to see what is being reported about you. Check it thoroughly as there may be old information or mistakes which is affecting your credit rating. Get these resolved and tackle any other issues that your report shows. Make sure that you have all the information before you make a decision to file for bankruptcy. It isn’t the end of the world if you do, but it will take you a long time to get back in the good graces of lenders.
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