Jenny Smith:

- Can bankruptcy be a solution for our debt problems or can it become a problem?

Martin Rogers:

One popular myth that people believe is that if they file for personal bankruptcy they will surely get rid of all their debt problems. That is not true at all!! Bankruptcy is not the ultimate solution for debt related problems. It is not even the most recommended, and it carries a lot of after-effect consequences with it.

Jenny Smith:

Martin, people truly believe that filing for personal bankruptcy can bring them a new fresh start. Is this true?

Martin Rogers:

Jenny, did you know that more than a million Americans file for personal bankruptcy per year? People still think that filling for personal bankruptcy will bring them a fresh new start and they are wrong. Huge amounts of debt are the main problem, and people do not know how to control themselves. That is why they seek a fast and easy way out, and they think bankruptcy is it.

Jenny Smith:

Martin, what are the minimum conditions to file for personal bankruptcy?

Martin Rogers:

When you start thinking about filing for personal bankruptcy you should live in a state for 90 days preceding the filing and you should have less than $ 290,000 on total unsecured debt or less than $ 860,000 on secured debt. In October 2005 the new bankruptcy law went into effect and established that consumers who receive less than the minimum wage could still file for Chapter 7 personal bankruptcy. But people, who earn more than that, need to apply for the Chapter 13 bankruptcy type. This one requires a repayment plan.

Jenny Smith:

After filing for bankruptcy, will people lose their credit right completely?

Martin Rogers:

Bankruptcy does not stop people from buying houses and cars. They will end up paying a pretty high interest though. The new law from 2005 also restricted the possibilities of filing for bankruptcy, and if it is granted, it will remain in your credit report for as long as 10 years. This entry on your credit report will surely lower it; and could take you up to five years to restore it to its normal score. This way you will not get into any more debts.

Jenny Smith:

What should people do when they feel that bankruptcy is the only way out?

Martin Rogers:

Whenever you feel like you are in financial problems, do not rush into making decisions such as filing for personal bankruptcy. There are many ways to free yourself or at least minimizing the problem. Some are:

- Taking out an equity loan on your house in order to pay as much debt as possible
- You can also cut down your expenses to a minimum and create a personal budget
- Rearrange your schedule and get a part time job
- Make an agreement with your creditors and develop a payment plan
- Sell some personal assets to collect some money
- Seek professional help. It is the best and fastest way

Jenny Smith:

As debtors, should people seek immediate legal advice or what should they do?

Martin Rogers:

The best debtor is the one that finds out about his problem and then looks for options. The next thing people need to do is check their assets and liabilities. Assets are material possessions that do not owe money on. Such as:

- Stocks
- Bonds
- Pension plans (401 k)

Liabilities are anything you owe money on. Such as:

- House
- Car

People will be able to determine what they can sell, in order to obtain enough money to pay off some debts. Next thing to do is to plan a budget to see how much you are spending and how much money you are bringing in. This way you will know what to cut back on and what to keep.

People do not know that cutting a few expenses can really make a difference. For instance, bringing lunch to work and stop eating out, changing your cell phone plan to the cheapest one available, and so on can really save you a lot of money. But if after all of this you do not see any progress, think of bankruptcy as your last resort and not as your first option.

Martin Rogers:

Jenny, I hope you can now see how personal bankruptcy really works, and how it is supposed to be used. Remember, bankruptcy is a tool that must be used at all cost as a last resort. Although it brings a lot of advantages, it also brings consequences that can ruin you easily if taken lightly.