Bankruptcy 101
Recent changes in bankruptcy laws have made this a less accessible option than in the past. Many bankruptcy filers are given a payment plan rather than the clean-slate debt liquidation they might have hoped for. There are, however, very difficult circumstances that can make bankruptcy the best option.
All bankruptcy filers are required to receive credit, budgeting, and debt counseling from approved sources. In the end, many filers are put on Chapter 13 repayment plans that last about five years. Bankruptcy stays on your credit report for ten years.
Rules
There are two types of personal bankruptcy, named after the chapters in the law that defines them. Chapter 7 bankruptcy establishes a clean slate by removing most of your debt so you can start over. Access to Chapter 7 requires that you pass a means test to see if you can afford to pay down more of your debt rather than get most debt forgiven. Under Chapter 13 bankruptcy, much of your debt remains to be paid back on a schedule.
Some debt that can't be discharged in bankruptcy includes:
Overdue child support
Alimony
Some kinds of tax debts
Student loans, unless repayment would be an “undue burden”
Other debt that your creditor convinces the court should remain
Bankruptcy's Consequences
Filing for bankruptcy creates what's called an automatic stay that stops your creditors' efforts to collect your debts, can halt utility disconnections and wage garnishments, and will temporarily delay foreclosure. The filing stays on your credit report for up to ten years and can make getting a mortgage or other credit more difficult and more expensive in the form of higher interest. Still, if you have tried to negotiate with your creditors yourself, and you've tried to present a payment plan yourself without success, filing bankruptcy may be your only choice.
How to Find Help
Referrals are the best way to find a bankruptcy attorney or advisor. Talk to your financial advisor, lawyer, or accountant for a referral to a bankruptcy attorney. Check with your local Bar Association or with your employer if they offer a confidential employee assistance program. There is an additional list of resources in Appendix B.
