Bankruptcy is a good option only if owe excessively and realistically cannot make the minimum payments to your creditors. Filing bankruptcy will allow you to legally declare your inability or impairment to pay creditors and gives you relief from paying most, or a portion of your debt. On the flipside, it can cause you extensive embarrassment and various credit and financial hardships. Before declaring bankruptcy, it would be wise to analyze the following types of bankruptcy and the bankruptcy PROS and CONS:

Chapter 7 BANKRUPTCY: This bankruptcy procedure is the most commonly filed. It allows you as a personal bankruptcy or business bankruptcy filer to discharge most of your debts, except spousal support, child support, student loans, and taxes. Your non-exempt property must be surrendered to the bankruptcy trustee to be liquidated with the proceeds distributed to unsecured creditors. However, you don't need to surrender exempt property, such as your home, used car, or household goods. You can only file Chapter 7 bankruptcy once every eight years.

Chapter 13 BANKRUPTCY: Also referred to as the “wage earners plan”, this bankruptcy procedure allows you to retain ownership and possession of all of your assets. However, a portion of your future income must be dedicated to repay creditors within 3 to 5 years. The value of your property and amount of your income and expenses will determine the amount of the repayment of your debt and period of the repayment plan. If you miss one court-ordered payment, your Chapter 13 bankruptcy case will be dismissed by the bankruptcy court.

Chapter 11 BANKRUPTCY: Under this bankruptcy procedure, the court classifies you as a debtor in possession (“DIP”) allowing you to retain ownership and control of your business assets. You’re also allowed to run daily business operations as you and your creditors, workout a debt repayment plan with the bankruptcy court. Once a repayment plan is confirmed, you can continue operating your business and paying your debts based on the terms confirmed by the plan.

In summary, declaring bankruptcy can destroy your credit for 10 years and can hurt your reputation, appearing in public records for 20 years. It may cause you to lose assets, such as your home and vehicles. You may have to deplete your life savings in order to repay creditors. You may also be turned down for credit, a job, or an apartment.

Additionally, under the new bankruptcy law, Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), it will be more difficult for you to discharge all, or most of your debt through Chapter 7. Regrettably, to qualify for Chapter 7, you’re now required to pass a complex means test, which unfairly calculates your monthly budget. Many bankruptcy filers have failed the means test due to being unable to show to the bankruptcy court that they cannot pay back at least a portion of their debts. If you’re like most bankruptcy filers who have failed the means test, you must file for Chapter 13.

Under a Chapter 13 bankruptcy filing, you’d be obligated to repay 30-50% of your total debt under a court-ordered debt repayment plan. Under the new law, the debt repayment plan was extended to 3-5 years. Remember, if you miss a court-ordered payment, your bankruptcy case will be dismissed! Additionally, under the new law you are required to undertake consumer credit counseling with an approved consumer credit counseling agency prior to filing a bankruptcy petition. Plus, you must undertake personal financial management education from an approved consumer credit counseling agency before the bankruptcy court can grant a discharge of your debt under a Chapter 7 or Chapter 13 bankruptcy.

WARNING: Under any bankruptcy filing, if most of your debts are unpaid income taxes, child support, alimony, student loans, or court-imposed fines, these debts won’t be eliminated in a bankruptcy proceeding

Statistics indicate that most bankruptcy filers could have avoided declaring bankruptcy if they had and additional $250 in monthly income. This means that you can easily avoid bankruptcy. One way is to supplement your income with a part-time job, or working a few extra hours. You can also seek a personal bankruptcy alternative or business bankruptcy alternative more practical to your financial situation. If you have minor debt, a good recommendation is consumer credit counseling. However, if you have substantial debt, you can qualify to get more aggressive personal and/or business debt relief through the National Debt Relief Stimulus Plan.