Before you consider filing for bankruptcy, it is important you understand the difference between different types of bankruptcy and your reasons for filing.  Credit rating is affected and much legality is involved.

Full freedom from the debt is not easy nowadays as the changing laws are getting tougher. Federal laws are supplemented by additional laws in many states.

If you are filing for bankruptcy, you can be affected by two main chapters of bankruptcy, Chapter 7 and 13.  Both of these chapters of bankruptcy are common and take into account individual debtors and small filers.

Chapter 7 also known as liquidation frees the debtor from all requirements to repay debt and may result in liquidation of assets.  More commonly, the debtors assets are exempt from the process of liquidation.  Fraud-related loans, student loans debt, State and federal debts may not be discharged through this process.

Chapter 13 is for the restructuring of debt and is commonly known as Reorganization. A repayment plan can be worked out by the debtor and creditor on the basis of approval from the court regarding the payment of the debt.

On the other hand, Chapter 13 an attempt to liquidate assets for the payment of complete debt amount. In order to make part payment of the main debt, re-structuring of payment plans is done more often. You can clear all your debts in less than five years.

Legal and Filing fees: Fees is approximately $800 or may be higher for a single person. Couple fees and business owner fees is $1,000 or more. You have to keep all the paperwork up to date to help your attorney in filing your documents. You will also have to spend time reviewing bills and answering questions to your attorney.

Did you know that certain types of debt and financial obligations cannot be discharged when filing for bankruptcy?  There are debts that are exempt from bankruptcy laws and you need to pay them whether or not you file for bankruptcy protection.

One financial obligation that can’t be discharged through bankruptcy is child support.  You are required to pay for child support by court order and filing for bankruptcy does not mean that you can stop paying it.

An IRS lien is expempt from being discharged by bankruptcy. What happens with an IRS lien is that you owe income tax payments from one or multiple years. At a certain amount of money owed, the IRS will put a lien on your house or some other type of asset that you own, or in lieu of that possibility, may garnish your wages via your employer. This type of IRS lien, in addition to being exempt from a bankruptcy discharge, is also on your credit report for about 10 years as a huge blemish, which would be in addition to the blemish on your credit report from your bankruptcy filing. These types of red flags on your credit report can make it more difficult to get approved for new credit in the future.

A court order, which may have awarded an individual or company a specific amount ofmoney through a lawsuit brought against you is not a debt exempt from bankruptcy either.

If you are behind in one or more debts with your creditors, those creditors will commonly file a lawsuit against you eventually.  This takes time and most creditors are not quick to go to this extreme to collect their money but in time it will most likely happen.  If this type of lawsuit occurs before bankruptcy, it will not be discharged after bankruptcy is filed.  If you have creditors with a judgment against you, filing for bankruptcy may not do much for you.

Government loans such as federal student loans are also exempt from bankruptcy discharge.

about 1/3 of the people filing for bankruptcy owe an entire year’s salary on their credit cards.

Almost 1 in every 100 households in the US will claim bankruptcy.