by Liisa Sullivan

Though we all might have predicted it, the numbers are still a little startling. In 2008, according to the American Bankruptcy Institute, bankruptcy filings around the country increased nearly 33 percent compared to the previous year, an upward trend that’s expected to continue through 2009. Finding yourself completely and utterly broke is never fun, of course, and most people see bankruptcy as a last resort. But it can actually be quite a relief, says Celeste Collins, executive director of OnTrack, a financial counseling agency in downtown Asheville. “With Chapter 7, it’s pretty much a fresh start. It helps with cash flow and relieves the debt burden.” In one of the worst recessions in decades, a fresh start doesn’t sound too shabby. If bankruptcy is where you’re headed, here are some things you should know.

In 2005, bankruptcy laws changed, making it more difficult for people to file. Now, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act, declaring bankruptcy means you have to pass a test. In Asheville, you could go to an approved credit-counseling agency like OnTrack on French Broad Avenue in downtown Asheville. If you pass their “means test,” meaning your income is below the median income in North Carolina, you can file for Chapter 7 bankruptcy, which basically liquidates your assets and sells them off. But if your income is above the median, you can file for a Chapter 13 bankruptcy, which allows you to restructure your debts and keep any property (that is, if you want to keep it).

Either way, bankruptcy involves a financial counselor, who issues a certificate for you to proceed with an attorney. The counselor should also help you sign up for mandatory financial education classes. OnTrack’s Collins, who wears a pin on her jacket made of cut-up credit cards, says, “whenever we can try to avoid a bankruptcy filing for a client, we do.”

To avoid winding up at OnTrack in the first place, Collins suggests negotiating with creditors or working with a debt management company. She warns to stay away from debt settlement companies, and there is a big difference. She explains that debt management companies are closely-regulated nonprofits that do what they say they do—help you manage your debt—whereas debt settlement companies can be money-making scams that instruct you to “consolidate” your debt and hand it over to them for a hefty upfront fee.

As if you needed one more bill, bankruptcy filings do cost. On average, a bankruptcy attorney will charge between $1,000 and $2,000 total, depending on court fees. Thankfully, most initial consultations are free.