Accumulating debts and not dealing with financial problems in time can lead to a situation where one may have to consider filing for bankruptcy. Arguably, this one of the most misunderstood financial terms today. A lot of people really do not understand the full implications and what it really stands for.

Bankruptcy gives someone with financial problems an opportunity to wipe his or her slate clean, canceling the debt and having a fresh start. It also allows the one being owed (creditor) to receive a good part of what the person owing the money (debtor) can pay back. It is usually filed for a number of reasons, the common ones being unemployment, divorce, foreclosures, or lawsuits etc.

There are two types of bankruptcy for such cases. They are Chapter 7 and Chapter 13. While Chapter 7 allows all unsecured debts to be wiped out; though you can lose your property, Chapter 13 gives regular income earners wishing to pay back their debts but can't the opportunity to do so with supervision. The court supervises such payments and a period of time is set for the payment to be made.

The truth is bankruptcy is not a decision to be taken lightly; it must be considered as last resort. And don't ever think you can deceive people and get rid of your debt easily by filing as a bankrupt. You will be seriously investigated to ensure you actually lack the ability to payback what you are owing. If you think you can just file for bankruptcy and then go on spending, you have another thing coming for you.

You will also have to undergo a means test. Because a lot of people have been abusing the system set in place for bankruptcy proceedings, extra efforts is being made to fully determine those can repay and those who can't. That is what the means test is for. The law categorically prohibits anyone that can pay 25% or $10,000 of his or her debt to file for the Chapter7 type of bankruptcy. So the means test determines which category you fall in Chapter 7 or Chapter13 bankruptcy.

Before choosing bankruptcy as an option in a bid to solve your financial problems, make sure you use the services of consultants who are well versed about the proceedings and who if possible can recommend alternative routes for you to take to deal with your debts. It should be a last resort. Get financial advice from experts, explore other options before taking up bankruptcy as an option. If for any reason you have to file, it means you didn't get a firm control on your financial life so you must make sure you are ready to take total charge of your finances so as not to be back in the same spot again in a short time.