What You Need to Know About Bankruptcy

Bankruptcy beckons as a quick way out of trouble. But if you don't understand the new rules, and the two consumer bankruptcy codes -- Chapter 7 and Chapter 13 -- you could be creating even more problems than you resolve.

The Truth About Bankruptcy

Here are some facts and some resources you may need to help you make this important decision. But before you consider filing for bankruptcy, you should know that no matter which route you take, a bankruptcy does not simply "wipe the slate clean."

Although we don't have debtors' prisons in America, there are some debts you cannot escape. During the bankruptcy filing your creditors cannot take actions to collect on your debts. But once the bankruptcy plan is "confirmed" by a judge, you will still face repayment on several types of debt.

Student loans, for example, are not cancelled by filing bankruptcy -- though repayments can be postponed (while the interest continues to accrue). In fact, there are easier ways than bankruptcy to defer student loans if you're in a "hardship" position.

Mortgage foreclosure can't be eliminated through a filing for bankruptcy -- but filing will "stay" the process until the bankruptcy is confirmed. Then, any creditors who have a "secured interest" in your property can move to foreclose, unless your bankruptcy plan has created an agreement to pay your past due amounts. And filing bankruptcy may not stop a tenant eviction from a rental property.

Most back taxes cannot be erased by a bankruptcy, nor can obligations to pay child support. So if you think bankruptcy is the "easy way out," you might be surprised. In fact, the bankruptcy law was changed in October 2005 to make it more difficult to simply default on the amounts you owe.

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