Some people who find themselves deep in debt feel that the only way out is filing for bankruptcy. This, however, is a very serious matter and is not a decision that should be made rashly. The debt elimination benefits of bankruptcy come at a high price.

When a person’s debt has risen to a level that they can’t hope to get under control, they may consider filing for bankruptcy. For a consumer there are two bankruptcy choices: Chapter 7 and Chapter 13. Chapter 7 bankruptcies involve wiping out the debts in part or in their entirety and liquidating assets to do it. Chapter 13 bankruptcies are more of a debt restructuring plan that gives you more time and a plan to pay back a portion of the debt that is owed to creditors.

Credit is damaged as a result of bankruptcy proceedings for up to ten years. For those ten years, every time you apply for a line of credit your bankruptcy will show up on a credit report. This applies to both Chapter 7 and Chapter 13 bankruptcies.

Some people have turned bankruptcy into a way to easily get rid of debt without having to pay the money they owe. In some cases, individuals have filed for Chapter 7 multiple times in an effort to rid themselves of incurred debt.

At a bankruptcy hearing, a judge determines which assets need to be taken and which can be exempt from the bankruptcy process. These decisions are based off of laws that are different in every state. Since people know how the system works, some have tried to buy high price items with cash like cars and houses before a bankruptcy. That way, those possessions are not liquidated and the individual ends up paying very little to their creditors.

The new laws concerning bankruptcy have changed this. Whereas courts used to have the leeway of deciding who could file for Chapter 7 bankruptcy, there are now criteria that must be met first. In order to file for Chapter 7 bankruptcy, a person has to have an income that is below the median income for the state where they live. Their income must be put through a calculation that determines if they have enough disposable income to pay twenty-five percent of their outstanding debt.

More people that file bankruptcy will have to file under Chapter 13. The courts decide what a person could pay from the information provided to them. There is an allowance made for rent/mortgage, food, and other pertinent bills. With the new bankruptcy law, standards set by the IRS determine allowable values for each of these bills. A certain amount is exempted, and the payments are determined from the rest.

Now that the bankruptcy process has become more complicated than before, lawyers are charging more to handle the proceedings involved. The extra cost involved also makes people think about their situation seriously before filing. Credit counselors can help you to make a plan for getting rid of debt without going through the bankruptcy process.

Bankruptcy should always be a last resort. While it will give you a clean slate, it comes at a price.