Each year more than 1,200,000 Americans file for protection under the federal bankruptcy laws, according to the American Bankruptcy Institute. Some are credit abusers or are financially irresponsible. But average working men and women who try to pay their bills on time can sometimes find themselves in financial difficulties, as well. The sudden loss of a job, catastrophic medical bills, soaring credit card interest, student loans, a divorce or even a natural disaster can quickly wipe out a life's savings. For many, bankruptcy provides a second financial chance.

Bankruptcy is usually used only as a last resort, after other attempts to solve a financial crisis have failed. You may want to talk to an attorney specializing in bankruptcy or a credit counselor to see if you really need to file for bankruptcy. Perhaps an agreement can be reached with your creditors before you take this final step.

Bankruptcy can relieve the honest but unlucky debtor from the crushing burden of excessive debt by providing a fresh start. It allows you to discharge some of your debt or allows you to get back on your feet without harassment by creditors. For many people the decision to file for bankruptcy is difficult. You may think that bankruptcy is a sign of failure or an indication that you are incapable of managing your own financial affairs. In reality, most people who chose to file for bankruptcy intend to pay their bills, they simply do not have the resources available to do so. By filing for bankruptcy, you get a fresh start with a clean slate, free of the stress and guilt that result from evading or fighting your creditors.

At the same time, the decision to file for bankruptcy should be carefully considered and not be taken lightly. It is, after all, a Federal court proceeding which can affect your legal right to keep or use your property. And once you start a bankruptcy case, it is near to impossible to stop.

There are two primary types of bankruptcy available to individuals. In Chapter 7, your nonexempt assets may be sold to pay creditors while most of your debts are discharged. In Chapter 13, you prepare a reorganization plan to pay off your creditors either in full or in part. Once you file a bankruptcy petition, an automatic stay prevents creditors from starting or continuing legal procedures against you.

In a Chapter 7 bankruptcy, your nonexempt property may be sold by a court-appointed trustee, who them makes partial payments to your creditors. You have the right to retain at least a partial interest in certain assets, such as your home, car, clothing, household appliances and furnishings, life insurance, pensions, and tools of your trade. Creditors do have the right to any collateral you have pledged to secure a loan. According to a 1997 Georgetown School of Business study, chapter 7 debtors had an average of $41,228 in unsecured debt.

The first step in bankruptcy is to file a petition and schedules at the clerk's office of the federal bankruptcy court. Your petition must include a list of all creditors, the sources and amount of income, a list of all real and personal property, and a detailed list of your living expenses. You must pay a fee (about $175) at the time you file your petition. It is usually advisable to hire an attorney. Be sure to discuss your attorney fees before hand and inquire as to whether you can pay in installments. In a straightfoward proceeding, the entire procedure usually takes four to six months.

If you have regular income, Chapter 13 bankruptcy provides a method for repaying your debt over a period of time, according to court-approved plan. The time allowed ranges from three to five years. The same Georgetown study found that the average Chapter 13 debtor had unsecured debts of $20,953. To file for Chapter 13, you must file the appropriate schedules and petitions with the court and pay a filing fee. You must also file a proposed repayment plan. A trustee will be appointed to follow your progress, make regular payments to creditors and to provide the court with necessary financial information about you.

Certain debts such as taxes, alimony and child support, student loans and some property settlements can not be discharged through bankruptcy.

Although a bankruptcy filing generally will stay on your credit report for 10 years, it need not be a permanent handicap. There are specific laws that forbid discrimination against persons who have declared bankruptcy. For example, you may not be denied a job or a driver's license just because you filed for bankruptcy. The emotional and psychological scars on you and your family may take some time to heal. You may want to seek support by contacting a professional counselor or clergy member, or discussing your feelings with a close personal friend or family member.

While bankruptcy has tarnished your credit rating, you can usually rebuild confidence from creditors. You can obtain credit if you demonstrate consistent employment record and signs of fiscal responsibility. Start by opening a savings account and obtaining a secured credit card. Make payments on time to build a positive credit profile.

While the stigma related to bankruptcy has eased, declaration of bankruptcy remains a difficult and monumental decision which can be viewed as either the "last resort" or a "fresh start" on a new life.