The bankruptcy law was updated in 2005 making it more difficult to file due to stricter guidelines. Over the course of the last decade debt relief options have become more available enabling more consumers to pay off or negotiate debt in place of filing bankruptcy. These advances have saved millions of consumers from bankruptcy and still provide the debt relief needed.

There are six different forms of bankruptcy available to consumers in the US. Some require liquidation of assets to pay off creditors and then the remainder is discharged. Other forms allow some of the debt to be forgiven while the remainder is restructured with a court approved repayment plan. For all filings, there is an initial means test that must be passed in order to qualify. You must demonstrate that you will not be able to pay your debts in their current status. Credit counseling, budgeting and financial education classes are often required as part of the discharge.

Bankruptcy has an array of long term negative consequences. Your credit score will suffer for many years, though if your credit is bad already due to late payments and collections, it may not be reduced much more. Lower credit scores may result in higher insurance payments, difficulty renting an apartment and even difficulty finding a job. The filing will be reported to your credit report for up to 10 years and is considered public information. During the years following a bankruptcy you will have difficulty qualifying for credit, which includes buying a home or car. The further in your past the bankruptcy occurred, the lower negative impact it will have on your credit worthiness. It takes time to rebuild and reestablish credit after a bankruptcy.

The most common types of bankruptcy are available through Chapter 7, Chapter 11, or Chapter 13, depending on your circumstances. The rules for what can be discharged and what assets you are able to keep will vary from state to state. A local attorney is a great resource for the specific laws in your state. Debts that are typically included in a bankruptcy include the following: