What to Know About Filing for Bankruptcy
Filing consumer bankruptcy provides at least partial relief of pre-existing debts, but is a serious legal procedure. Since 2005 bankruptcy reform laws passed, American citizens may find it harder to declare bankruptcy than in past generations. Bankruptcy filings also negatively impact consumer credit ratings for seven to 10 years, notes the book "How to File For Chapter 7 Bankruptcy."
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Before Filing Bankruptcy
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You must complete a credit counseling session with a federally approved provider before filing any bankruptcy paperwork, warns the Federal Trade Commission. If you don't include a copy of your certificate of completion with your initial bankruptcy paperwork, your case will be immediately dismissed. Most pre-bankruptcy credit counseling sessions last between 60 and 90 minutes and can be completed online, over the telephone or in-person.
Types of Bankruptcy
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Most people file either Chapter 7 or Chapter 13 bankruptcy, notes the book "How to File for Chapter 7 Bankruptcy." Chapter 7 bankruptcy allows permanent elimination of approved, pre-existing debts like credit card and medical bills. Chapter 13 enables people to partially repay their debts under court supervision, but they cannot get any type of new credit without court consent until they've finished the payment plan.
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Ineligible Debts
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Some types of debt can never be reduced or eliminated in bankruptcy, warns the book "How to File for Chapter 7 Bankruptcy." Court fines, child support, alimony, future debts, debts incurred right before declaring bankruptcy and money owed due to illegal activities are ineligible for bankruptcy relief. Back tax bills can only be included in bankruptcy if the debts were incurred at least three years ago. Unless a judge accepts your claim of permanent disability or your college has since closed, don't count on including federally issued student loans in your bankruptcy case.
Financial Costs
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As of 2011, it cost $274 to declare Chapter 13 and $299 to file a Chapter 7 case, according to the U.S. Bankruptcy Court. If you choose to hire an attorney to file bankruptcy on your behalf, those costs are separate from your obligations to the bankruptcy court. Bankruptcy officials may require you to surrender some of your assets, such as extra cash, certificates of deposit, real estate equity, stocks or bonds. However, your retirement accounts and basic personal possessions are always safe despite your bankruptcy status, according to the book "How to File for Chapter 7 Bankruptcy."
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