It is a common belief that filing for bankruptcy is a way of eliminating all your debts
. While in a miniscule number of cases, this is true, more often than not, you will have to pay back at least a part of that debt. Added to this bankruptcy can also completely destroy your credit rating for a period of 7 to 10 years. Working on getting a semblance of it back can be a big deal. A part of prudent financial planning would be to know that situations where you get the worst part of the bargain when it comes to filing for personal bankruptcy.
Find out what are the earnings of an average individual in your state. If you make more than that, chances are you will have to file for bankruptcy under Chapter 13. This means that a repayment plan will be put in place for you. What happens here is that all your disposable income will have to be handed to a court appointed authority who will look into its dispersal. You will have to give up on several luxuries and the courts are quite strict about that. Missing even one payment can have you in contempt. You can end you paying the whole amount upfront as penalty.
If you have a car and own a home along with some other equity and these are not exempt in your state, the legal machinery can force you to sell your assets to make up for the debt. The same goes with any of your investments, second homes or cars. The best way to assess this is to get in touch with a bankruptcy lawyer who will do the legwork for you. Some states have exemptions like in Illinois, where a percentage of the value of the home, car and a limited value of general items is allowed.
Another reason you should avoid bankruptcy is when your creditors have proof that you are fraudulent and never had intent to pay. This will ensure that you have will have bankruptcy slapped on you along with a bad mark on your credit history. Having such proof can also give your creditors the ability to petition against your filing for bankruptcy.