If you're drowning in debt and creditors have your phone ringing off the hook, personal bankruptcy might seem the only way out. Indeed, for people whose debts dwarf their ability to pay, declaring bankruptcy can be a fast way to gain a fresh financial start. There are two types of bankruptcy petitions you can file: Chapter 7 and Chapter 13. Each of these have a different purpose and different set of circumstances attached.

A Chapter 7 bankruptcy petition is meant for people whose debts far exceed their assets and would have extreme difficulty ever settling their current debts. This type of bankruptcy would result in the liquidation of all assets, aside from those that merit exemption. All proceeds from liquidation would then be split among the creditors you owe.In return, you are discharged from all applicable debts. Once Chapter 7 bankruptcy is filed, your creditors must cease and desist from all lawsuits, wage garnishing, phone calls and letters related to your debts.

Chapter 13 bankruptcy serves not to discharge you from your debts but rather to reorganize them and repay them within three to five years. This option is preferable for people with property and assets they want to keep and/or a predictable source of income allowing them to repay their debts and maintain a standard of living. This type of bankruptcy allows the debtor to keep their property and file a repayment schedule with the court. If you file for Chapter 7 bankruptcy but a judge deems you fit to pay, you may be forced to re-file under Chapter 13. This could happen for any number of reasons, from assessment of your income to the value of your property.

Once you've filed for bankruptcy, by law your creditors must cease and desist from any action against you regarding your debts. This includes phone calls, letters, lawsuits and wage garnishing. You should be careful to consider any co- debtors in your decision about whether or not to file for bankruptcy. If your creditors cannot collect from you, they will go after anyone who has co-signed a loan with you.

No matter how you slice it, filing for bankruptcy will do damage to your credit rating. However, most people who file for bankruptcy already have poor credit ratings that are unlikely to get much worse from declaring bankruptcy. Your bankruptcy will be listed in your credit report for ten years after the date of filing. Ultimately, the opportunity to make a fresh start by wiping out existing debts and rebuilding credit is often preferable. Before making the decision to file for bankruptcy, it is a good idea to talk with a lawyer, financial advisor or credit counselor to ensure you are making the right decision for your long-term financial future.

Samantha Bainer is the webkeeper of Aol Bankruptcy Ltd which is an amazing place to find bankruptcy links, resources and articles. For more great information on this article. please visit:http://www.aolbankruptcy.com/.