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If your finances are in a mess, you may have considered bankruptcy. Even though your debt may be wiped clean, there are many other end consequences.

If you find that you can’t seem to pay your bills every month, you may consider filing for bankruptcy. As a consumer you have two choices: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is when all your assets are sold off in order to pay all or part of your debt. With Chapter 13 bankruptcy, it’s more of a debt restructuring and you will make a plan to repay part of the debt overtime to your creditors.

Your credit will be damaged if you file for bankruptcy, maybe for as much as ten years. If you apply for any credit during that time the creditor will be informed of the bankruptcy.

In the past, people have taken advantage of the bankruptcy laws. For instance, people have been able to file more than once for Chapter 7 bankruptcy. They have used it as their own personal “debt eliminator”.

Individual states decided on what if any assets will be excused from seizure for a bankruptcy. In knowing that, people used any available cash to purchase things like cars and homes to avoid payment while still keeping their personal items. If this happens, very often the creditors would get very little back from the settlement.

This has been changed by new laws. Courts used to have free rein when it came to who could file for Chapter 7 bankruptcy. Now certain standards have to be met first. In order to be able to file for Chapter 7, your income must be below the average income of the state where you live. Your income then goes through a calculation that determines if you have enough disposable income to be able to pay back twenty-five percent of the debt owed.

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.

Because there are more hoops to jump through, bankruptcy lawyers are charging more for their services. The whole process of bankruptcy will cost the filer more than before, which will make them think twice about the process. Credit counseling sessions are also required as a precursor to filing for bankruptcy. A credit counselor may determine that they can help you and thus eliminate the need for bankruptcy proceedings.

Filing for bankruptcy is a major issue and should not be taken lightly. Although it clears your debt, it does come with its own price tag.