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Should I declare bankrupty?

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Q: Unfortunately, I have come to a point where I can’t sell my home because the market has slowed down. We have fallen behind on our mortgage payments, and they have started the foreclosure process. I do not know exactly how far they are, but I fear that I will be left with no alternative if I don’t do something. My only alternative is bankruptcy, which I know nothing about — questions like can I keep my home, will I continue paying for it, my car, and the damage this will do to my credit report. Would I ever be able to sell and buy another property again? — Lizbeth V., Oak Brook, Ill.

A: This is one of the hardest questions we get, and there are people far better qualified than we are to help. If you have a lawyer you trust, that’s a good place to start, even if bankruptcy is not their specialty.

Though personal bankruptcies are handled under federal law, it’s hard to generalize about the process. There are different “chapters” of the law available, and state laws vary in the way personal property like your home is handled in bankruptcies. In general, most debts are eliminated, though some — like alimony or back taxes — usually aren’t. Credit bureaus keep a record of a personal bankruptcy filing for 10 years, but that doesn’t mean you can’t get credit. Some lenders may extend secured credit; after two years, mortgage lenders generally care more about your down payment and current income. For more on presonal bankruptcy, check out the American Bankruptcy Institute’s Web site.

Another option is a credit counselor. The initial consultation is usually free. In some cases, a counselor can help you work out a payment schedule with a lender that lets you avoid bankruptcy. Some of these agencies are subsidized by lenders who want to help people avoid writing off their debt entirely. The National Federation of Credit Counselors is a clearinghouse for legitimate credit counselors. They can help you find a local agency in your area.

But watch out for shady credit firms that claim to help you out of debt, but end up lending you more money on predatory terms. The Federal Trade Commission Web site has some tips on how to spot the scams.