Chapter 7 filers, on the other hand, are "means-tested" and have to undergo a counseling session with a credit counselor. Basically, you have to be pretty much broke.

When you file for Chapter 13, you can keep the majority of your property, so home equity or other investments won't get wiped out. You get a few years of interest-free payments to a single "trustee" which handles distribution to your creditors.

In Chapter 7, much of your property is forfeit - which is why it makes more sense for people who have less to lose.

Whether you fall under Chapter 7 or Chapter 13 filing, it's also important to find a trusted bankruptcy management service or professional to help guide you through the complex legal pitfalls of the process.

A married couple can select from two different types of bankruptcy procedures, according to the U.S. Bankruptcy Code. A Chapter 7 bankruptcy allows a married couple to obtain a discharge--or elimination--of most if not all debts. A Chapter 13 bankruptcy lets a married couple pay off most if not all debts through a payment plan supervised by the bankruptcy court.

The primary consideration you and your spouse face in determining which type of bankruptcy is best suited to your circumstances is an analysis of your disposable income. Disposable income is income above and beyond that necessary to meet your most basic expenses. If you have enough disposal income, through protection from the bankruptcy court, you can manage the payments required of a Chapter 13 repayment plan. If there is no way to generate enough disposable income to pay off debts, you probably should file a Chapter 7 case.

In order to receive the full benefits of a bankruptcy case, you should file before you are in the midst of legal problems, including a home foreclosure. Being proactive allows you to deal with most of your debts in a manner that protects as many of your assets as possible.

A recurring misconception is that only one spouse must file for bankruptcy and the protections of the case extend to both spouses. In fact, if only one spouse files for bankruptcy and obtains a discharge from certain debts, the other spouse remains responsible for these debts.

Once a person files for bankruptcy, the federal court grants an "automatic stay." This prevents creditors from attempting to collect on any outstanding debts. Creditors may petition the court for relief from the automatic stay. Often, creditors whose loans are secured by property are permitted to take possession of that property.

Bankruptcy Facts About Discharge
At the end of the legal proceedings, the "bankruptcy adjudication" (a finding that a person is "bankrupt") discharges the person's debts. The discharge acts as a forgiveness of personal liability for all debts incurred prior to filing. In most instances, creditors can't try to collect debts that have been discharged. Once discharge is granted, former creditors also have no claim on future income.

In exchange for this "fresh start," a debtor must turn over all non-exempt property to a court-appointed trustee (see Chapter 7 below). The trustee is required to sell the property and distribute the proceeds to the creditors.

A debtor can be denied a discharge for certain "bad acts" such as concealing or fraudulently transferring assets prior to filing.

Even if a discharge is granted, certain debts can never be discharged. These include: alimony and child support, student loans, taxes, and any debt incurred through the debtor's fraud or theft.

Your Filing Options
Individuals may choose several different types of bankruptcy based upon the amount and nature of the debts, the exemptions available, and the types of assets they own. The different bankruptcies are named after the corresponding chapter in the code.

Chapter 7 is referred to as "straight" or "liquidation." In a liquidation, the debtor turns all of their assets over to a trustee.

The trustee then liquidates (sells) all the assets and distributes the proceeds to the creditors. The person is then discharged of all debts, except those which cannot be discharged.

Bankruptcy Facts: Every state allows a debtor, even in a liquidation, to keep some small amount of property. Creditors must look solely to the assets held by the trustee for payment. Creditors can't come back later and try to collect their claims from the discharged debtor. A debtor can receive a Chapter 7 discharge once every seven years.

Chapter 13 debtors pay their debts through future income rather than liquidation of their current assets. This chapter usually allows the debtor to keep much of his or her property.

Under Chapter 13, the debtor presents a plan for repayment, which is reviewed by the trustee, the creditors, and the Bankruptcy Court.

Bankruptcy Facts: Chapter 13 is available to those debtors with unsecured debts (usually credit cards) less than $100,000, and secured debts less than $350,000 (home mortgages and car loans).
Over time, the plan must provide creditors with an amount at least equal to what they would receive under a Chapter 7 filing, and must be feasible based on the debtor's income. If the plan is approved, the debtor makes payments to the trustee, who then pays the creditors. Plans usually run at least three years, and cannot run longer than five years.

While a debtor under Chapter 13 gets to keep much of his or her property, there are certain disadvantages:
Debtors remain under court supervision for the life of the plan (up to five years), and are forbidden to make new debts or sell assets without court permission.
Debtors who propose less than full payment to unsecured creditors will be forced to live on a budget for the life of the plan and pay all excess income to the creditors.
Even if the debtor pays all of the creditors in full, the bankruptcy will still appear on the debtor's credit record.
If the debtor doesn't complete the plan payments, then any creditor may petition to have the court convert the case to a Chapter 7 liquidation.
Chapter 11 is a reorganization proceeding, usually involving corporate debtors. It's also available to individuals who have engaged in commercial enterprises. This chapter is used when the owner desires to stay in business, restructure existing debts, retain assets, and attempt to reorganize under court supervision.
Bankruptcy Facts About Taxes
Filing bankruptcy under either Chapter 7 or Chapter 11 will stop all IRS or state tax collection activities. But if a Chapter 7 is filed, the tax collection activities resume shortly after filing because the tax obligation cannot be discharged in bankruptcy. Furthermore, interest and penalties continue to accrue. Under Chapter 13, on the other hand, filing halts the accumulation of interest and penalties, and taxes may be paid over the life of the plan.
What About Co-Debtors?
Bankruptcy Facts: If you are married and your debts arose during the marriage, both spouses need to file or all the debts will be transferred to the other spouse. A bankruptcy filing often involves other persons who have cosigned notes or mortgages with the debtor. The filing of a Chapter 13 plan can be used to stop all creditor actions against certain co-debtors. This is true even if the co-debtors are solvent and do not join the Chapter 13 petition. This protection can become permanent if the plan provides for payment of the cosigned debt in full and is fully performed.
How Filing Affects Your Credit
Not all creditors react the same way to bankruptcy, but your credit will be hurt. This does not mean that you will not be able to obtain credit. Some companies extend credit to individuals that have declared bankruptcy because they know that you can only file bankruptcy once every seven years. However, you can expect the interest rates on such credit to be high.

The number of businesses going bankrupt climbed eight per cent to 59,608 during the same period, despite signs of economic recovery.

"A total of 1,572,597 bankruptcy cases were filed in federal courts in that period (year ended June 30, 2010), compared to 1,306,315 bankruptcy cases filed in the 12-month period ending June 30, 2009," according to the latest data available with the Administrative Office of the US Courts.

Interestingly, these figures come in the backdrop of many big US corporates having good financial performance this year.

Moreover, the bankruptcy filings are the highest since 2006 when the number stood at 1.48 million.

After remaining below the one-million mark in 2007 and 2008, the bankruptcy filings shot up last year at 1.31 million.

Going by the official data, business bankruptcy filings rose eight per cent in the year ended June 2010 to 59,608 as against 55,021 in the comparable period.

"Non-business filings for the 12-month period ending June 30, 2010 totalled 1,512,989, up 21 percent compared to the 1,251,294 non-business filings for June 30, 2009," the Administrative Office said in a recent statement.

At the height of the financial crisis in 2008-09, many corporate giants such as General Motors and Chrysler had entered bankruptcy restructuring. The financial meltdown became worse after the bankruptcy of then Wall Street major Lehman Brothers in September 2008.

Meanwhile, the national economy is not fully out of the woods, despite stimulus packages running into billions of dollars. With unemployment rate hovering at 9.5 per cent and claims for jobless benefits on the rise, there are even fears of severe economic slowdown in coming months.

If those options are insufficient, bankruptcy may be the best way for your clients either to secure a reasonable payment plan (Chapter 1 1 or Chapter 13) or to liquidate their assets to pay off all or a portion of their tax debt (Chapter 7). Using administrative tax resolution methods instead of bankruptcy may help clients avoid having a "black mark" on their credit history. However, a federal tax lien listed on the debtor's credit report may damage his or credit.

NOT ALL TAX DEBTS DISCHARGEABLE

To be dischargeable, individual income lax liabilities must meet the Bankruptcy Rules attributable to 11 USC Section 523(a) and 11 USC 507(a)(8):

* More than three years must have elapsed since the tax return generating the liability was due, including extensions. Various acts such as prior bankruptcies, collection due process (CDP) hearings, innocent spouse relief and lax assistance orders can extend the three-year lime frame.

* The tax return must have been filed more than two years earlier than the bankruptcy petition (generally applicable to late-filed returns). Note, however, that IRS prepared "substitute returns" are not considered filed returns for this purpose, and thus a tax liability assessed from them would not be subject to discharge (IRC [section] 6020(b)). Therefore, il is almost always advisable for the client to file all delinquent returns and, if possible, let the pertinent time frames pass before the bankruptcy petition is filed.

* At least 240 days must have elapsed since the date of an IRS assessment (generally applicable to audit adjustments and amended returns). This lime frame is extended by an OIC.

Filing fraudulent returns or willful attempts to evade or defeat tax also can prevent such taxes from being discharged (11 USC Section 523(a)(1)(C)). Certain other taxes, including withheld payroll taxes, the trust fund penalty under IRC [section] 6672, most slate sales taxes and certain excise taxes, are never dischargeable. Such nondischargeable taxes may also be priority debts under 1 1 USC [section] 507(a)(8).

Tax debts that meet the three-year and 240-day rules of 11 USC Section 507(a)(8) but do not satisfy the two-year filing rule of 1 1 USC [section] 523(a)(1)(B) are not priority debts, but they are nonetheless nondischargeable.

Unpaid nonpriority tax debts used to be dischargeable upon completion of a Chapter 13 payment plan, but the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 repealed the Chapter 1 3 "superdischarge."

C

If you're an individual or a sole proprietor, you can file a Chapter 13 bankruptcy to pay off all or part of your debts over three to five years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay.
Many people who file Chapter 13 bankruptcies have mortgages or other loans they would like to bring current, so they don't lose their homes or other property. Others have taxes, child support or student loans that can't be wiped out by Chapter 7 bankruptcy, or have moral convictions that all debts should be paid no matter how long it takes. You'll need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities) to file a Chapter 13 bankruptcy. You must have no more than $807,750 in secured debt (debt involving property that your creditor might take if you don't make your payments) and $269,250 in unsecured debt. The court filing fee is $160. says California Bankruptcy Lawyer Steven C. Peck.

With minor exceptions, anyone can file a Chapter 11 bankruptcy. Typically, it's filed by business owners who want to keep the business running and catch up on their debts. Individuals with very complex financial situations also file Chapter 11. The filing fee is $800, plus a quarterly fee based on the amount of debt.

Chapter 7 bankruptcies are filed most often by individuals or small, mom and pop business owners who have too much debt to file Chapter 13, or want to wipe their financial slate clean. The filing fee is $175. In exchange for canceling most debts, you give up certain kinds of property to be sold for your creditors. If you're an individual, some property, such as portions of equity in your car or home, is exempt from creditors; exemptions vary by state. Entities are not entitled to these exemptions. Debts for individuals are wiped out in not more than six months. says Los Angeles Bankruptcy Attorney Steven C. Peck.

Family farmers can file a Chapter 12 bankruptcy, called a "reorganization for family farmers," if your debts aren't higher than $1.5 million and at least 80 percent of the debt and 50 percent of their income comes from farm operations. The family must own at least 50 percent of the farm operations and 80 percent of the farm assets, and there cannot be any publicly traded stock.

Alternatives to bankruptcy include trying to negotiate with creditors to reduce monthly payments or to skip some payments, or to get help from a nonprofit credit counseling group.
Bankruptcy is reported on your credit for up to 10 years, and you'll have difficulty getting credit right after a bankruptcy. It usually takes at least three years to reestablish your credit rating.

Bankruptcy filing allows for the discharge of most,if not all of the following:
Prevents property from being repossessed.
Stops the collection process
Prevents you from having your utilities cut off
Stops/Prevents wage garnishment.

To file for bankruptcy you will need to submit all personal bankruptcy information regarding your finances, recent dealings, secured and unsecured debts, expenses, creditors, assets, and tax returns. . Bankruptcy lawyers advise you to give up using credit cards because creditors can challenge bankruptcy filing thru a lawsuit or any adversary proceedings.

Upon successful filing a provision of stay comes into effect and creditors are not allowed to contact you or lay claim to your property for a month. a short meeting called the 341(a) meeting is generally taken as a go-ahead for the bankruptcy and your debts may be discharged in four to six months time. Now that you know how to file for bankruptcy you may want to know the two most common types of bankruptcy:

Chapter 7 Bankruptcy is when all assets are liquidated to pay off the creditors and the remaining debt is discharged. This is a total resolution of debt as compared to:

Chapter 13 bankruptcy where a debtor agrees to pay the debts over a period of three to five years while getting to keep all assets. An attorney may advise filing chapter 7 bankruptcy if the debtor does not have a steady or any source of income to help pay off the debts over a period of time.

Insurance:

* Disability or health benefits
* Life insurance proceeds or avails needed for support
* Unmatured life insurance contract accrued avails to $11,075
* Unmatured life insurance policy other than credit

Miscellaneous

* Alimony, child support needed for support

Pensions

* ERISA qualified benefits needed for support

Personal Property

* Animals, crops, appliances, furnishings, household goods, books, musical instruments and clothing to $525 per item
* Burial plot to $20,725, in lieu of homestead
* Health Aids
* Jewelry to $1,350
* Motor vehicle to $3,300
* Personal injury recoveries to $20,775 (not to include pain and suffering or pecuniary loss)
* Wrongful death recoveries needed for support

Public Benefits

* Crime victims' compensation
* Public Assistance
* Social Security
* Unemployment benefits
* Veterans' benefits

Tools of Trade

$2,075

Wild Card

$1,100 of any property plus unused portion of homestead or burial exemption of any property. Total wildcard = $21,825

Homesteads:

* The exemption for a homestead is limited to $125,000 if the property was acquired within the previous 1215 day (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) ;
* The value of the state homestead exemption is reduced by any addition to the value brought about on account of a disposition of nonexempt property made by the debtor (made with the intent to hinder, delay, or defraud creditors) during the 10 years prior to the bankruptcy filing.
* An absolute $125,000 homestead cap applies if either:
the court determines that the debtor has beeen convicted of a felony demonstrating that the filing of the case was a abuse of the provision of the Bankruptcy Code; or
othe debtor owes a debt arising from a violation of federal or state securities laws, fiduciary fraud, racketeering, or crimes or intentional torts that caused serious bodily injury or death in the preceeding 5 years. NOTE: This limitation is inapplicable if the homestead property is "reasonably necessary for the support of the debtor and any dependent of the debtor."

The state you use for your exemptions is:

* The state you lived in for the 730 days (2 years) before filing; or
* If you did not live in a single state in the previous 2 years you use the state where you lived the majority of the 180 period preceding the 2 year period; or
* If the preceding renders you ineligible for any exemptions then the debtor is allowed to choose the federal exemptions.

Pension Plans exempt from seizure:

Employee contributions to ERISA qualified retirement plans, deferred compensation plans, tax-deferred annuities, and health insurance plans.

Education Funds exempt from seizure:

Funds placed in an educational retirement account or qualified State tuition programs at least 365 days prior to a bankruptcy filing, within the limits established by the Internal Revenue Code, and for the benefit of a child or grandchild of the debtor, are excluded from the debtor's estate, with a $5,000 limit on funds contributed between one and two years before the filing.

* Disability or health benefits
* Fraternal unemployment bonds
* Life insurance proceeds or avails if clause prohibits proceeds from being used to pay beneficiary's creditors
* Fidelity bonds
* Homeowners' insurance proceeds for 6 months after received, to homestead exemption amount
* Matured life insurance benefits needed for support
* Unmatured life insurance policy loan value to
$10,775 husband and wife may double to $21,550

Pensions

* County employees
* County firefighters
* County peace officers
* Private retirement benefits, including IRA's and KEOGHS
* Public employees
* Public Retirement benefits

Miscellaneous

* Property of business partnership
* Business or professional license, except liquor licenses
* Inmates' trust funds to $1,350 (husband and wife may not double)

Personal Property

* Appliances, furnishings, clothing and food needed
* Bank deposits from Social Security Administration to $2,700 ($4,050 for husband and wife.
Note on Social Security:
Bank accounts which receive direct deposits from Social Security are exempt without making a claim if they have $2,700 or less (if one depositor is designated payee) or $4,050 (if two or more depositors are designated payees). Balances over the designated amount are completely exempt as long as traceable to Social Security.
* Building materials to $2,700 to repair or improve home (husband and wife may not double amount)
* Burial Plot
* Health aids
* Jewelry, heirlooms and art to $6,750 total (may not be doubled)
* Motor vehicles to $2,550 in auto insurance if vehicle(s) lost, damaged or destroyed (may not be doubled)
* Personal injury causes of action
* Personal injury recoveries needed for support; if receiving installments at least 75%
* Wrongful death causes of action
* Wrongful death recoveries needed for support; if receiving installments, at least 75%

Public Benefits

* Aid to blind, aged, disabled, AFDC (Aid to Families with Dependant Children)
* Financial Aid to Students
* Relocation benefits
* Union benefits due to labor dispute
* Unemployment benefits
* Worker's Compensation

Tools of Trade

* Tools, implements, materials, instruments, uniforms, books, furnishings, equipment, vessel, motor vehicle to $6,750 total (Motor vehicle limited to $4,850); to $13,475 total (Motor vehicle limited to $9,700) if used by both spouses in same occupation (cannot claim motor vehicle under both tools of trade exemption and motor vehicle exemption.

Wages

* Public employees vacation credits; if receiving installments, at least 75%
* 75% of wages paid within 30 days of filing for bankruptcy

Claiming Exemptions:

Typically, you'll include a schedule or list of your exempt property when you file your bankruptcy petition. The schedule should include a description of the property, specify the law authorizing the exemption and list the value of the exemption and the market value of the property. Market value doesn't factor in the exemption amount. This information allows parties in your case to evaluate your claim, such as creditor who might object to an exemption.

Creditors, or others interested in your case, can object to your exemptions within 30 days after the meeting of the creditors, which is also called a 341(a)meeting. This meeting is one of the first things to occur after you file. If someone objects, it's their burden to prove that you've improperly claimed the exemption.

What Kinds of Property Are Exempt, and How Much?

The type and amount of bankruptcy exemptions varies and is determined under state or federal law. Exemptions used to be based entirely on state law, so your exemptions depended on where you lived, your domicile. The Bankruptcy Code tried to achieve more uniformity in exemptions with a set of minimum exemptions, allowing debtors to choose between exemptions under federal or state law. States were allowed to opt out of this framework and require their citizens to claim exemptions based on state law.

Thirty-four states exercised this opt-out or veto power. In these states, the treatment of exemptions looks much like it did before the Bankruptcy Code was enacted. Talk to a bankruptcy lawyer in your area to determine which set of exemptions is best for you.

What about the House and the Car?
Homestead Exemption:

The homestead exemption applies to property used as your residence. The federal homestead exemption for cases filed after April 1, 2007 is $20,200. State homestead exemptions vary widely. Before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed, debtors would engage in bankruptcy planning to maximize this exemption. A debtor would move to a state with a generous homestead exemption and shield assets from creditors by buying an expensive home. Current law limits your homestead exemption to $136,875 if you acquired your home in the 1215-day period before filing for bankruptcy.

Exceptions apply, including the common situation where someone trades up to a more expensive home and transfers equity to the new purchase. The homestead exemption is also limited if you've used it to delay, hinder or defraud a creditor.

If your equity isn't covered by the homestead exemption, it's possible in a Chapter 7 case that the trustee, who administers your bankruptcy estate, could have it sold to raise money to pay your creditors. In that case, you would want to consider filing under Chapter 13, which centers on a repayment plan spanning several years. If you don't have equity in the home, or it's within the exemption amount, you can consider keeping it. You'll still have to pay your mortgage. If you don't, the lender can seek foreclosure.
Exemptions for Automobiles

The Bankruptcy Code exemption for a car or automobile is $3,225. The equity in your car is based on the car's market value, less any loans against it. If your equity is more than $3,225, it's possible that you could apply exemption amounts from other categories, such as the exemption for tools of the trade. If the trustee sells it, you're entitled to receive the exemption amount. Finally, it's possible to pay the trustee the amount above the exemption and keep the vehicle.
Other Exemption Categories:
Household Goods and Furnishings:

Federal bankruptcy law and state laws provide exemptions for household goods and furnishings. The federal exemption amount is $10,775, and $525 for a particular item. However, this type of property usually has little resale value, and the bankruptcy trustee won't likely view it as a viable source of assets to use to repay creditors.

Retirement Assets:

You can exempt retirement funds under § 522(d)(12) of the Bankruptcy Code. The exemption applies to pension, profit sharing and stock bonus plans, employee annuities, Individual Retirement Accounts (IRAs), deferred compensation plans such as your 401(k) account, and certain trusts. The 2005 amendments to the Bankruptcy Code expanded the protection allowed to certain tax-exempt retirement plans that weren't always protected under former law. This protection is important, as your retirement account balances are probably among the most substantial assets you have. There's a cap on the amount of exempt funds held in Roth IRAs of $1,095,000, but the cap doesn't impact most debtors.

How to Claim Bankruptcy in California
Step 1:
Attend credit counseling with a credit counseling agency approved by the US Trustee's office. The counseling session should cost about $50, and you should receive a certificate of credit counseling at the end of the session. You must file this certificate with the bankruptcy court.
Step 2:
Take the means test. Compare your family income to the median family income for the state of California. As of 2010, the Census Bureau listed California's median incomes as $47,969 for a single earner; $64,647 for a family of two; $70,638 for a family of three; and $79,174 for a family of four. Add $7,500 for each family member in excess of four. If your family income is less than the state median, you can file for Chapter 7 and skip to Step Four.
Step 3:
Calculate monthly disposable income by deducting allowed monthly expenses from monthly income. If your monthly disposable income is less than $100, you can file for Chapter 7. If your monthly disposable income is more than $100, and that amount would not pay at least 25 percent of your debts over the next 60 months, you can file for Chapter 7. Otherwise, you may need to file for Chapter 13 bankruptcy and repay your debts for the next three to five years.
Step 4:
File the Chapter 7 bankruptcy petition in the bankruptcy court serving your district. You should pay a filing fee of $299, and you may file your schedules while filing the petition or within a few days of filing the petition. The schedules should list income and expenditures; assets and liabilities; unexpired leases and executory contracts. You must also file a statement of financial affairs.
Step 5:
Claim exempt property. After you have filed your petition, a bankruptcy trustee will be appointed to administer your case. The trustee will sell all non-exempt property and use the proceeds from the sale to pay your creditors. The state of California lists property that cannot be sold: homestead up to $50,000 if single, $75,000 if family, $150,000 if 65 or older or disabled; clothing; furniture; appliances; health aids; bank deposits from Social Security Administration; tools of the trade; burial plot; wages; insurance; public benefits; pensions; and business or professional licenses. Refer to California law for a complete list.

Claiming Bankruptcy Exemptions:
Typically, you'll include a schedule or list of your exempt property when you file your bankruptcy petition. The schedule should include a description of the property, specify the law authorizing the exemption and list the value of the exemption and the market value of the property. Market value doesn't factor in the exemption amount. This information allows parties in your case to evaluate your claim, such as creditor who might object to an exemption.

Creditors, or others interested in your case, can object to your exemptions within 30 days after the meeting of the creditors, which is also called a 341 meeting. This meeting is one of the first things to occur after you file. If someone objects, it's their burden to prove that you've improperly claimed the exemption.

What Kinds of Property Are Exempt, and How Much:
The type and amount of bankruptcy exemptions varies and is determined under state or federal law. Exemptions used to be based entirely on state law, so your exemptions depended on where you lived, your domicile. The Bankruptcy Code tried to achieve more uniformity in exemptions with a set of minimum exemptions, allowing debtors to choose between exemptions under federal or state law. States were allowed to opt out of this framework and require their citizens to claim exemptions based on state law.

Thirty-four states exercised this opt-out or veto power. In these states, the treatment of exemptions looks much like it did before the Bankruptcy Code was enacted. Talk to a bankruptcy lawyer in your area to determine which set of exemptions is best for you.

What about the House and the Car?:
Homestead Exemption
The homestead exemption applies to property used as your residence. The federal homestead exemption for cases filed after April 1, 2007 is $20,200. State homestead exemptions vary widely. Before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed, debtors would engage in bankruptcy planning to maximize this exemption. A debtor would move to a state with a generous homestead exemption and shield assets from creditors by buying an expensive home. Current law limits your homestead exemption to $136,875 if you acquired your home in the 1215-day period before filing for bankruptcy.

Exceptions apply, including the common situation where someone trades up to a more expensive home and transfers equity to the new purchase. The homestead exemption is also limited if you've used it to delay, hinder or defraud a creditor.

If your equity isn't covered by the homestead exemption, it's possible in a Chapter 7 case that the trustee, who administers your bankruptcy estate, could have it sold to raise money to pay your creditors. In that case, you would want to consider filing under Chapter 13, which centers on a repayment plan spanning several years. If you don't have equity in the home, or it's within the exemption amount, you can consider keeping it. You'll still have to pay your mortgage. If you don't, the lender can seek foreclosure.

Exemptions for Automobiles:
The Bankruptcy Code exemption for a car or automobile is $3,225. The equity in your car is based on the car's market value, less any loans against it. If your equity is more than $3,225, it's possible that you could apply exemption amounts from other categories, such as the exemption for tools of the trade. If the trustee sells it, you're entitled to receive the exemption amount. Finally, it's possible to pay the trustee the amount above the exemption and keep the vehicle.

Other Exemption Categories:
Household Goods and Furnishings
Federal bankruptcy law and state laws provide exemptions for household goods and furnishings. The federal exemption amount is $10,775, and $525 for a particular item. However, this type of property usually has little resale value, and the bankruptcy trustee won't likely view it as a viable source of assets to use to repay creditors.

Retirement Assets:
You can exempt retirement funds under § 522(d)(12) of the Bankruptcy Code. The exemption applies to pension, profit sharing and stock bonus plans, employee annuities, Individual Retirement Accounts (IRAs), deferred compensation plans such as your 401(k) account, and certain trusts. The 2005 amendments to the Bankruptcy Code expanded the protection allowed to certain tax-exempt retirement plans that weren't always protected under former law. This protection is important, as your retirement account balances are probably among the most substantial assets you have. There's a cap on the amount of exempt funds held in Roth IRAs of $1,095,000, but the cap doesn't impact most debtors.

Personal bankruptcies numbered 137,698 last month, a 9% increase from the June total, according to the American Bankruptcy Institute, an organization of lawyers and other professionals. The data were supplied by the National Bankruptcy Research Center; similar government tallies won't be released for months.

Curbs on access to credit, such as those that arose during the recent recession, tend to fuel consumer bankruptcies as individuals who encounter trouble paying debts fail to find new sources of credit. "They can no longer borrow to stave off the day of reckoning," said Robert Lawless, a University of Illinois law professor.

Filings in July were also up 9% compared with the same month a year ago, and 2010 is on pace to record the largest number of consumer-bankruptcy filings in five years. Filings topped 1.4 million last year, the most since Congress revamped bankruptcy laws in 2005 to make it more difficult for consumers to shed debt.

So far this year there have been nearly 908,000 personal-bankruptcy filings, representing roughly one in every 125 U.S. households. At this point last year there were about 802,000 filings.

The upswing in personal filings has cast doubt on whether the 2005 bankruptcy-law change has been effective. Filings declined drastically in 2006 but resumed their increase in following years.

Consumer-bankruptcy filings are veering toward the higher levels recorded in the early and mid-2000s, before the overhaul, but have so far remained a bit lower. The number of filings could decline modestly in the next few years if less access to credit makes it more difficult to accumulate debt.

Personal bankruptcies haven't been distributed evenly. The suburbs of Atlanta had particularly high filing rates, according to an analysis by Ronald Mann, a professor at Columbia University's law school. Of the 10 U.S. counties with the highest filing rates, six were in Georgia.

Filings in many Southern states, however, have begun to decline compared with last year, including South Carolina, Alabama, Tennessee, West Virginia and Mississippi.

"The places that have come out of this quickly are the places that aren't really tied to the financial centers," said Mr. Mann.

If you need to discharge tax debts, Chapter 7 bankruptcy will probably be the better option -- but only if your debts qualify for discharge and you are eligible for Chapter 7 bankruptcy .

When You Can Discharge a Tax Debt:
You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:

•The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
•You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can't help.
•The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
•You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
•You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
You Can't Discharge a Federal Tax Lien:
If your taxes qualify for discharge in a Chapter 7 bankruptcy case, your victory may be bittersweet. This is because bankruptcy will not wipe out prior recorded tax liens. A Chapter 7 bankruptcy will wipe out your personal obligation to pay the debt, and prevent the IRS from going after your bank account or wages, but if the IRS recorded a tax lien on your property before you file for bankruptcy, the lien will remain on the property. In effect, this means you'll have to pay off the tax lien in order to sell the property.

The law is not supposed to punish those who make one or two honest mistakes. If you accidentally leave something off your papers or misstate something on your forms, you can usually correct your papers or explain the mistake to the trustee. But if you leave out so much that it appears that you were careless, the court can find that your actions demonstrate an indifference to the truth and can dismiss your case on that basis indicates California Bankruptcy Lawyer Steven C. Peck.

If you deliberately attempt to hide assets or use a false Social Security number, it will probably come back to haunt you more profoundly than your current debt crisis.

List Every Creditor:
Bankruptcy can't help you if you hide information. If you fail to list creditors, the debts you owe them may not be wiped out by your bankruptcy discharge. So, be sure to list every person who claims that you owe them money -- even if you don't think you owe them a cent. In this situation, you can indicate that the debt is "disputed." If the debt is already the subject of a pending lawsuit, the debt can be listed as "contingent" -- that is, it depends on how the lawsuit comes out.

When your bankruptcy is finished, you will no longer owe any debts that have been discharged. If a disputed debt is discharged, the entire dispute will be irrelevant. The creditor will be legally barred from collecting anything more from you regardless of who is right.

Don't Omit Creditors Just Because You Like Them:
Some filers consider omitting creditors whom they like -- such as a relative or a friendly local business person -- to avoid having that debt wiped out. This is a bad idea, no matter how honorable your intentions. Bankruptcy doesn't allow you to play favorites. In fact, a central purpose of bankruptcy is to make sure that all of your creditors get their fair share of what you have, and that certain obligations (like child support) are not shortchanged. If the bankruptcy trustee learns that you've omitted creditors from your list, you'll have to add them, and it will raise suspicion about other statements on your forms.

Include Money You May Have Coming to You:
When you list your property on the bankruptcy forms, you must include not only property you have when you file, but also property that you may have coming to you. Here are some examples:

•an inheritance from a recently deceased relative that you have not yet received
•stock options, trust funds, or tax refunds
•pensions, retirement funds, annuities, and life insurance, and
•judgments from lawsuits you've filed or could file, arising from a personal injury or other matter.
All of these are examples of property that you must list on your forms. You may get to keep some or all of this property by claiming it as exempt, but you must list it so that the trustee has a complete picture of all of your finances.

Don't Deliberately Hide Assets or Other Financial Details:
If you deliberately fail to disclose property, omit material information about your financial affairs, or use a false Social Security number to hide your identity as a prior filer, and the court discovers your action, your case will be dismissed and you may be prosecuted for fraud. The punishment for fraud is serious: Jail time is not unusual for those who try to hide property from the court and get caught.