As we celebrate the beginning of a new year some people have difficult decisions to make regarding their finances.  If you have vowed to get your finances in order, to regain control of your financial future or are just tired of struggling day to day without getting ahead you might be thinking about drastic measures to get a fresh start in 2009.

If you are considering bankruptcy as the solution to an overwhelming level of debt you should proceed with caution and learn as much as you can about the effect it will have on your life before committing yourself to this process. First and foremost you should realize that bankruptcy should be your last resort and for a number of good reasons.

There are two types of bankruptcy which you can file. Chapter 13 bankruptcies are generally filed when you are dealing with a sudden yet short term change in your life (such as job loss or illness) which renders you unable to repay your debt in a timely manner. If you are able to continue your monthly obligations you will have what is called a “reorganization” which basically gives you three to five years to pay off the past balances without harassment from debt collectors. Chapter 7 bankruptcies are filed when you have no means to pay off or reorganize your debt. If you have any assets that are not exempt they will be sold or turned over to your creditors by a court appointed trustee.

Impact on your credit

When you file for bankruptcy you can expect the damage to your credit report to last for several years as this negative mark can show as long as a decade. Understand that in most cases you will be unable to get approved for any form of credit or loan during the first few years due to the perceived capability to repay a financial obligation. In short when it comes to your credit bankruptcy is by far the most damaging form of debt “relief” options available to you.

Impact on your life

If your debt has reached the point where bankruptcy is an option you have probably already traveled the road filled with harassing phone calls, messages and letters from debt collectors. While filing for bankruptcy will put a stop to that form of harassment you might feel a different backlash from the stigma of bankruptcy.  As previously stated by reorganizing or discharging your debt you will have the opportunity to rebuild your credit while living debt free, however once you file for bankruptcy it stays with you forever. It may make it harder to rent property or find a job as both future lenders or employers can ask if you have every previously filed for bankruptcy.  Although in time your credit will likely recover, you will always have this filing in your history. If you lie on an application you risk losing your job or rental property if you are found out, not to mention the fact that it is illegal to lie about filing for bankruptcy.

Bankruptcy is an option available to anyone struggling with a very high level of debt but as you can see it is something that should be taken very seriously. You should consider contacting a bankruptcy attorney to guide you through the process and advise if you bankruptcy is in fact the right choice for you.