For many Americans, the recession is hitting home—and hitting hard. 
Mass layoffs have spread across the country and left record numbers of people out of work and on the brink of financial disaster.

Bankruptcy Filings Rising

The old bankruptcy stigma has faded as more Americans are turning to bankruptcy to resolve their debt. 
In fact, in the last three months of 2008, there was a 54 percent increase of total bankruptcy filings and, in February, bankruptcy filings increased 37 percent over the same time last year. 
President Obama addressed the nation on Feb. 25 and said health care costs contribute to a bankruptcy occurring every 30 seconds.

Types of Bankruptcy

Filing bankruptcy has become a method of choice for many Americans who can no longer tolerate the weight of their debts. 
Chapter 7 bankruptcy allows many unsecured debts to be discharged (eliminated), essentially giving the debtor a fresh start. 
Chapter 13 bankruptcy allows debts to be reorganized and can help homeowners avoid foreclosure, giving them a fighting chance to make ends meet while resolving debt problems.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is generally an attractive option for people who have a lot of debt, are having trouble making ends meet and who have little equity in real estate. 
Many debts may be completely discharged through Chapter 7; however, debts such as recent taxes, child support, alimony and some student loans can’t be discharged. 
A person must qualify to file Chapter 7 under the means test, which examines a person’s income versus their expenses and debt.

Chapter 13 Bankruptcy

The other type of personal bankruptcy, Chapter 13, is generally a good option for people who have steady income but have fallen behind on their bills.

Under Chapter 13, filers are placed on a repayment plan that typically lasts between three and five years. 
The filer makes one realistic monthly payment directly to a bankruptcy trustee—there is no contact with creditors.
Once the repayment plan is complete, the court may discharge (eliminate) the filer’s remaining unsecured debt.
Unlike Chapter 7 bankruptcy, there’s no official test to take to be eligible to file Chapter 13; however, since it is a repayment plan, you’ll need to have a regular income.

Bankruptcy Can Protect Your Valuable Assets

The court issues an automatic stay after a bankruptcy petition is filed, which shields the debtor from creditors and STOPS collection actions, including

• foreclosure
• repossession
• utility shutoff
• wage garnishment
• legal actions

Both Chapter 7 and Chapter 13 bankruptcy offer the protection of the automatic stay.

If you have additional questions about filing bankruptcy, a local bankruptcy lawyer is a good resource to talk to.