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How to know when it's time to declare bankruptcy

As the housing crisis continues to touch American lives, one of the ripple effects of the crisis is the desperate financial straits of homeowners who continue to struggle with debt -- even years after losing their homes. 

As lenders continue to pursue deficiencies from three or four years ago, honest people who want to make good on their debts are increasingly overwhelmed. They find it impossible to rebuild their financial lives. Attempting to make even the minimum payments on a sea of debt can wipe out your retirement savings and max out your credit cards.

It takes only one small shift in circumstance to make repayment an impossible task: a loss of employment, divorces, a health or housing crisis. Remaining in denial about the futility of repaying all debt is stressful and takes a toll on your relationships, family and health. When your liabilities are excessive, and your assets are minimal, if not gone, it is time to take a rational look at a very personal and, often emotional, decision: Should you declare personal bankruptcy?

Years ago, personal bankruptcy was considered by some to be a shameful last resort. 

In today’s economy, however, personal bankruptcy filings are no longer seen as a kiss of death to your credit worthiness. These filings have become an acceptable last-ditch effort to help you organize your debt, and free you from years and years of making minimum payments that will never go away. If you qualify, filing for personal bankruptcy may be an effective way to restore optimism in your financial future and rebuild your dreams.

If you are considering bankruptcy the most important thing to do is to find a reputable lawyer to advise you

For instance, in a Chapter 7 bankruptcy filing, you must meet a “means test” which will look at your income and debt to determine your true need for relief. These guidelines vary from state to state. 

Martindale-Hubbell is an index of lawyers, available online at martindale.com, which you can use to search for a bankruptcy lawyer in your area. Search for lawyers rated “AV” which indicates that a lawyer’s peers rank him or her at the highest level of professional excellence.

The consequence of filing for personal bankruptcy is that it does stay on your credit report for many years. However, there is evidence that lenders are adjusting to this new landscape. With careful management of limited credit and prompt repayment of any new debt, it is possible to repair your FICO scores. Some lenders are even allowing mortgages to people who have claimed bankruptcy.

The economy has forced many of us to a place where we need to stand up and declare: “enough is enough.” We need permission to free ourselves from the bondage of minimum monthly payments that are holding us hostage the promise of a more secure financial future. 

Personal bankruptcy no longer has to carry the shame of failure. 

If you have tried to meet your obligations, but have been battered by economic forces beyond your control, the decision to take action and take control of your finances can be a cause for optimism and the beginning of a more stable financial future.

Robert "Bob" Massi is an attorney and Fox News Legal Analyst. Watch him discuss the foreclosure crisis Thursdays on "Fox & Friends."

Robert Massi is a legal analyst for Fox News Channel.