The United States Constitution provides a method whereby individuals, burdened by excessive debt, can obtain a fresh financial start and pursue newly productive lives unimpaired by past financial problems. It is an important alternative for persons mired deep in financial difficulty.

The federal bankruptcy laws were enacted to provide debtors with a fresh start and to establish a ranking and equity among all the creditors who are clamoring for the debtor's limited resources. Bankruptcy helps people avoid the kind of permanent discouragement that can prevent them from ever reestablishing themselves as hard working members of society. Also, creditors are ranked so that the debtor's nonexempt property can be fairly distributed according to established rules guaranteeing identical treatment to all creditors of the same rank.

This discussion is intended only as a brief overview of the types of bankruptcy filings and of what a bankruptcy filing can and cannot do. Anyone considering this course of action is encouraged to seek the advice and assistance of an attorney specializing in bankruptcy law.

An important feature applicable to all types of bankruptcy filings is the automatic stay. The , automatic stay means that the mere request for bankruptcy protection automatically "stays" or forces an abrupt halt to repossessions, foreclosures, evictions, garnishments, attachments, utility shutoffs, and debt collection harassment. It offers debtors a breathing spell by giving the debtor and the trustee assigned to the case time to review the situation and develop and appropriate plan. Creditors cannot take any further action against the debtor or the property without permission from the bankruptcy court.

If you are behind on your house or car payment and are worried about repossession or foreclosure, then Chapter 13 bankruptcy is your savior. A phone call or free consultation with Dusenbury and Associates can quickly inform you if bankruptcy can benefit you. After the case is filed, it becomes illegal for your creditors to foreclose on your house or repossess your car.

The new bankruptcy law makes it more difficult to file Chapter 7, however it is no more difficult to file Chapter 13. Also, while most people can still file under Chapter 7 and wipe out all of their unsecured debts, Chapter 13 is still a huge benefit to those who can't file Chapter 7.

Debtors have the option after bankruptcy of voluntarily paying some creditors, such as a doctor or hospital, with whom they wish to maintain credit. The payments are voluntary and do not reaffirm the past obligation.

    Bankruptcy Means Test

Under the new bankruptcy law, something called the means test dictates whether you file a Chapter 7 or a Chapter 13 bankruptcy. The means test is based on your income and family size. The 2006 Illinois income thresholds for the means test are based on family size and appear immediately below:

1 person in family - $43,012
2 people in family - $53,320
3 people in family - $64,286
4 people in family - $72,742
*each additional person in family in excess of 4 add $6300

Obviously someone with a high net worth or very high income will have limited benefit from the bankruptcy laws. Usually, however, people with debt problems are not high net worth, high income individuals.

    Chapter 7

With Chapter 7, you continue to pay for your house and car but your credit card debt and your medical bills are eliminated. Usually you keep all of your property. Also, in the case of a Chapter 7 bankruptcy, creditors know that once a Chapter 7 is filed, you can not file another Chapter 7 for eight years and they also know that you are largely debt free meaning that you may be a better credit risk after filing bankruptcy than before. The larger your family size the more money you are able to make and still file Chapter 7 bankruptcy.

Chapter 7 bankruptcy stops wage garnishment and creditor harassment. Also chapter 7 restores or prevents termination of utility service.

    Chapter 13

With Chapter 13, you also usually keep your property, including your house and cars, but you have to make a relatively small payment to the bankruptcy court to pay off a small portion of your unsecured debt (credit cards and medical bills). Usually this payment is a fraction of what you were paying before the bankruptcy. The amount of money you have to pay back is much less under Chapter 13 and your unsecured creditors receive no interest. Chapter 13 bankruptcy forces your creditors to give you the opportunity to catch up on your house and car payments over a five year period. Also, in some instances you only have to pay the bank what your car is worth, not what you owe on it. Even if a foreclosure has already been filed, Chapter 13 bankruptcy stops it dead in its tracks.

Chapter 13 can stop a forclosure even after it has been filed and also can prevent a repossession or force the return of a vehicle that has already been repossed. You may click here for Chapter 13 FAQ's.

A common concern people considering bankruptcy have is the effect bankruptcy will have on their credit. While this is a legitimate concern most people considering bankruptcy already have bad credit or their credit is about to deteriorate once they are no longer able to pay their bills. Also, as time goes by, credit can be reestablished. You may be pleasantly surprised at how fast your credit comes back. This is not to say that credit is necessarily a good thing. While we need it for things like houses and cars I believe that credit cards are a trap that leads to sleepless nights for you and huge profits for the credit card companies. If you can't pay off the full balance of your credit card at the end of the month, you probably shouldn't be charging on it.