For some people, filing personal bankruptcy is the only way they can find their way out of overwhelming debt. Whether your debt is the result of not being able to pay your bills because you were laid off work or the result of poor financial decisions, there are a variety of things to consider before actually filing personal bankruptcy. When you first consider this option, you will need to decide if Chapter 7 or Chapter 13 will fit your needs better. As well, there are a variety of debts that cannot be included in your settlement.

Chapter 7 requires that a trustee sell off your nonexempt assets so that your debt can then be repaid. With Chapter 7 bankruptcy, there is the risk of losing your home, along with a majority of your other personal items. Therefore, before filing Chapter 7, it is important you have a full understanding how Chapter 7 works. When it is all said and done, if you file Chapter 7, you will no longer have your overwhelming debt.

Chapter 13 varies quite a bit from Chapter 7 bankruptcy. Chapter 13 requires that a portion or all of your unsecured debt is repaid. A repayment plan is established through the court. Payments can be made over a period of 36 months to 60 months, depending on the amount of the debt. The repayment amount is equal to or greater than the amount would be should you have chosen to go with Chapter 7 and liquidated your assets.

Although personal bankruptcy may seem like a great way to break free of your overwhelming debt, there are some types of debt that cannot be included when filing. Debt that occurs from student loans, taxes, child support, spousal support, criminal fees and charges made on a credit card 40 days before filing this cannot be included.

It is important that you realize filing personal bankruptcy will have a negative effect on your credit rating. This effect will last for approximately seven to ten years. Although your credit score will be affected, you can still obtain credit after you have filed bankruptcy. However, the credit that you will be able to obtain will carry a higher interest rate than it would if you didn't have a bankruptcy filing on your credit.

Filing this can also have other negative effects. For instance, if you would need to obtain life insurance you may have a harder time obtaining a policy. Many car insurance companies are now charging a higher premium if you have a bad credit score. Many employees are now running credit checks. Therefore, if you have this on your credit report, it may be harder to obtain a job. You may also experience psychological effects, such as depression.

For many, debt is a way of life. However, there are instances when the debt becomes more than you can handle. Personal bankruptcy is a way to help you deal with debt that you can no longer pay. If you are looking to file, it is important that you have a full understanding of the way it works, as well as the lasting effects it can have.