THE HELP DESK The Help Desk: Top Tips

Should you go bankrupt?

Consumer bankruptcies are on the rise according to an industry report. But is bankruptcy the answer for you?

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By Gerri Willis, CNN personal finance editor

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NEW YORK (CNNMoney.com) -- U.S. consumer bankruptcy filings rose 37% nationwide in May from the same time a year ago. And more Americans are filing Chapter 13 -- the type of bankruptcy where you have to pay back some of your debt -- rather than Chapter 7 -- which your slate is wiped clean. The American Bankruptcy Institute expects almost one and a half million new bankruptcies by the end of the year.

1. Are you a candidate?

You're a good candidate for bankruptcy if you have high credit card debt, legal or medical debt that you don't think you'll ever be able to pay back. That's because if you can declare Chapter 7 bankruptcy, this debt is discharged.

Declaring Chapter 7 generally lets you get a fresh financial start -- but thanks to changes in the bankruptcy code, getting a Chapter 7 bankruptcy is harder. A lot of folks will only qualify to file a Chapter 13 bankruptcy in which you have to pay back some of what you owe to creditors.

If you have high student loan debt, alimony payments, unpaid back taxes or court-imposed fines you can't get out of paying those debts, says bankruptcy attorney Claire Ann Resop in Wisconsin.

2. Get the details

Declaring bankruptcy is not guaranteed to save your house, but it can delay foreclosure.

When you file for bankruptcy, foreclosure proceedings are stopped dead in their tracks and won't resume until your bankruptcy is completed. That could buy you enough time to become current with your mortgage payments.

If you've missed a few mortgage payments and you declare Chapter 13, you can spread out what you owe over time. There are certain exemptions that vary from state to state. You can hold onto your retirement savings, some home equity, your Social Security, college savings, your car and household goods up to limits.

3. Find a credit counselor

In order to even file for bankruptcy, you have to receive guidance from a credit counseling agency that is approved by the U.S. Trustee's office. Go to www.usdoj.gov/ust and click on credit counseling and debtor education.

Next, you'll have to find a bankruptcy attorney. Make sure you get referrals.

Keep in mind that bankruptcy isn't cheap. It could cost $2,300-$4,300 depending on if you file a Chapter 7 or Chapter 13.

Got a financial dilemma? Go to CNNMoney.com/helpdesk to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN's Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions. To top of page

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