By Sally Herigstad
Published: May 22, 2009

Dear To Her Credit,

I am about $80,000 in debt due to illness, a divorce, and a period of time when I couldn't work. About half of my debt is medical bills, and the other half is credit card debt. I am headed toward bankruptcy -- I can't see any way out. I don't make anything close to that much money in a year. I'm scared and embarrassed.

What actually happens when a person goes bankrupt? Does everyone know about it? Do I have to face my creditors in court? I just don't know how I'm going to go through this. -- Stacey

Dear Stacey,

I'm actually encouraged by two things in your situation. First, you know exactly how you got into debt. Second, you already know bankruptcy won't be easy.

All too often, we hear from people who slid silently into debt -- they're not quite sure how. It's hard to fix problems if you don't know what they are. People who spend more than they make probably will continue to do so. Filing for bankruptcy won't fix their problems.

You had one-time catastrophic events beyond your control that upended your finances. American bankruptcy laws were created for cases like yours, in which debt resolution can give you a fresh start and let you become a productive, contributing citizen again.

I also talk to people who want to snap their fingers and have their debt be gone. Those people are in for a rude shock when they have to go through the bankruptcy process. Bankruptcy involves paperwork -- way more even than applying for a home loan. You probably will have to take time off work to go to meetings with your lawyer. Bankruptcy is public, and going to bankruptcy court isn't a walk in the park. You lose some control over your financial life when you file for bankruptcy; for instance, you don't get to decide which of your creditors get paid first or at all. And you have to pay the lawyer and trustee no matter what.

You know enough about bankruptcy to be taking it seriously. That's good. Now, to allay some of your fears.

The first thing you'll do to file for bankruptcy is find good legal advice. From then on, you do exactly what they tell you to do. They generally tell you to stop making payments on your debts. (Of course, you can no longer use your credit cards.) The bankruptcy process is confusing, but you're paying someone good money to guide you through it.

Bankruptcy filings are public information. But think about how much time you spend reading the bankruptcy notices in the local paper. Not much? That's probably true for your friends, too. Unless your friends are also your creditors and receive notices of your bankruptcy in the mail, or you are famous, your bankruptcy will not be big news. In fact, you might be surprised how many of your friends and business acquaintances have filed for bankruptcy at some time, too.

Bankruptcy court is not a happy place, but neither is it that scary. The courtroom probably won't look like the ones you've seen on TV. More likely, it's a boring room in the courthouse with folding chairs. Don't be alarmed when you see the number of people in the room. Most of them are waiting their own turn and are not interested in your case. If any of your creditors or their representatives show up, they are not allowed to disrupt the proceedings.

The meeting is quiet and orderly. The judge, or in some cases the trustee, asks you questions and looks at your paperwork. Your actual time in court will probably be short (although it may not feel like it). Your case may be resolved in court, or it may take weeks or months before it's over.

When your case is resolved, you find out what debts you still have and what assets you can keep. State laws vary, but you may be surprised how many assets you are allowed to keep. Then, you can start over to rebuild your financial life, as many, many people before you have done successfully.

If you must file for bankruptcy, I hope the process goes quickly and smoothly for you. Put it behind you, and look for better days ahead!

Sally Herigstad writes about women and credit every week for CreditCards.com. Herigstad is a writer and finance consultant for MSN Money, a personal finance software product. She is also a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her Web site is http://helpicantpaymybills.net. Sally Herigstad lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant.

To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.