Bankruptcy is a scary topic, especially if you are facing it. What makes it even scarier is that few people really know what to expect, what is involved, and what they will have left when it is over. Probably the single scariest unknown is: What will happen to your home if you file for bankruptcy?

Often, you will be able to keep your home, says Leon Bayer, a Los Angeles bankruptcy lawyer. But a lot depends on how much equity you have in your home, what state you live in and whether you can afford to keep making your mortgage payments.

A great deal also might depend on tougher proposed bankruptcy legislation currently before Congress. The Senate in early March approved the first major overhaul of bankruptcy laws in 27 years. The controversial bill, which the House is expected to pass in April, would make it harder for people to walk away from their debts and start fresh. It would make debtors whose incomes exceed a certain amount pay credit-card charges, medical bills and other debts under a court-ordered plan. Overall, it would cost many debtors more money and take them longer to emerge from bankruptcy. And the stricter new measures also could make it more difficult for some bankrupt people to hold onto their homes.

If you still are mulling bankruptcy, you also should weigh how bankruptcy might affect your credit rating, because it will stay on your credit history for as many as 10 years. But typically if you are considering filing bankruptcy, your credit record probably already is a mess.

If you are considering bankruptcy, you have lots of company. According to federal bankruptcy court records, there were more than 1.6 million personal bankruptcies filed nationwide in 2004. That represents more than 2.3 million people, since 44 percent of those filings were by couples. Of the remainder, 30 percent were single or divorced women, and 26 percent were single or divorced men.

What pushes people into bankruptcy? According to Elizabeth Warren, a professor at Harvard Law School, two-thirds of the cases involve a lost job, and more than half of the cases stem from serious health problems. She adds that the "average" filer is 38 years old and better educated than the general population. The states with the highest bankruptcy rates are Utah, Georgia and Alabama. Bayer, a partner with Bayer, Wishman & Leotta, has been practicing bankruptcy law for 25 years. He says that one of the most important things to remember is that "bankruptcy's purpose is rehabilitation. It is not punitive. Bankruptcy is not a sentence for having done something wrong. It's a chance to start over." Bankruptcy also offers some protection from creditors and forces them to stop hounding you for payments. Federal law, not state law, covers bankruptcy. But unlike most federal laws, it currently allows each state to set limits and conditions as to how much an individual or married couple can "protect" from creditors. These limits are referred to as exemptions.

"Bankruptcy is there to give people a fresh start, but it doesn't really mean anything unless you have something to start over with," Bayer says. It is easier to understand bankruptcy law when you understand why it evolved. It is no coincidence that the first bankruptcy law was passed in 1898, "mainly to provide an economic safety valve to people who no longer had anywhere to run when they were broke," Bayer adds.

People who were financially insolvent fueled western expansion. Most were broke and had nothing to lose. When the free land was gone, however, and there was no longer a place for them to run, the country lacked an economic safety valve. So, bankruptcy laws were created. Each state gets to decide what qualifies as an exemption, how big it can be, and exactly what a person or couple has to do to claim it. Bayer notes that it ranges from just a few thousands of dollars in states such as Oklahoma and Kansas to more-generous states such as Texas and Florida, which have much more liberal homestead exemptions that can shelter assets from creditors.

Depending upon where you live, your age, medical status, and so on, there are exemptions that may or may not let you protect even more. There also are exemptions that cover vehicles.

You also must know how to use the exemptions. California, for example, currently has two different lists of exemptions, and you must choose which one to use. Those differences are reasons why people facing bankruptcy often turn to a bankruptcy lawyer. Although a bankruptcy lawyer can help you figure out how to protect your home, if you cannot keep making your house payments, nothing will save it from foreclosure. But if you can make the payments, you might be able to hold on to it.

For people facing bankruptcy, home equity typically is not a source of funds through refinancing, since few of them have much home equity. If they did, they'd be able to refinance to draw on that equity. Instead, people who consider bankruptcy feel they have run out of options.

As Bayer points out, there is no more "Western expansion" or "open land" to pioneer if things don't work out at home. What you do have is bankruptcy court.

Bankruptcy is serious and scary. But the more you know about it and the laws governing it, the better able you will be to protect your assets -- especially your home -- if you do have to file bankruptcy.