Bankruptcy is a legal process (read more about bankruptcy here) that takes place in the federal court. When you file for bankruptcy, you are actually declaring your inability to pay debts. You seek debt relief by filing for any one of the 6 chapters of bankruptcy depending on your financial situation. Although bankruptcy is regarded as an option that should be the last resort to get out of debt, there are many creditors who regard it as a “responsible financial behavior”. Filing for bankruptcy undoubtedly, lowers your credit score to a great extent but it gives you an opportunity to stabilize your finances. There are 6 types of bankruptcy.

• Chapter 7: In Chapter 7 bankruptcy, individuals or business entities opt for total liquidation of debts that are eligible.
• Chapter 9: A Chapter 9 bankruptcy is usually filed by a municipality.
• Chapter 11: An individual or a business entity intending to reorganize their debts files for Chapter 11 bankruptcy.
• Chapter 12: Chapter 12 bankruptcy is meant for family fisherman and family farmers.
• Chapter 13: Chapter 13 bankruptcy is meant for those debtors who wish to reorganize their debts as per a new repayment plan.
• Chapter 15: Chapter 15 bankruptcy deals with international cases.

Earlier filing for bankruptcy was easier and very limited restrictions were imposed on consumers intending to file for bankruptcy. With the introduction of the new bankruptcy law on 17th October 2005, the consumers have to abide by certain new rules and regulations.

The new bankruptcy law has brought about the following changes-

Waiting period: Earlier you could file for bankruptcy quite frequently. However, the new law envisages that if you are intending to file for bankruptcy, the waiting period should be more. In other words, you can file for bankruptcy after several years have passed since you last filed for one.

Eliminating all your debts: Prior to the introduction of the new bankruptcy law, filing for bankruptcy could eliminate all your debts. With the new bankruptcy law introduced, only certain debts qualify for being eliminated.

Bankruptcy eligibility: Previously, you could decide on your own whether to file for bankruptcy or not. The new law makes it mandatory that you get approval by a bankruptcy judge to find out if you are eligible for filing for bankruptcy or not.

Seek professional assistance: It is best to take guidance from a bankruptcy lawyer to have a thorough understanding of the bankruptcy process before you file for bankruptcy. If you take help from a bankruptcy professional, you could end up saving a lot of money.

Although filing for bankruptcy may lower your credit score and cause a lot of mental agony, it gives you an opportunity to bring your finances back on tracks. Over the years you can also improve your credit score. However, don’t allow yourself to reach a point where you have to file for bankruptcy, try other debt relief options instead.

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