What You Need to Know About Bankruptcy

It pays to understand the new law, and there are several new books that are designed to explain it to you. Among those to consider are Personal Bankruptcy Laws for Dummies by James P. Caher and John M. Caher, The New Bankruptcy: Will it Work for You? by Stephen Elias and American Bar Association Guide to Credit & Bankruptcy by David Hudson, Jr.

Spend time reading about bankruptcy before you consult an attorney, so you can make the right choices. Many attorneys want to file the comparatively quick and easy Chapter 7 bankruptcy (if the client qualifies) because they can collect their fees and be done with the process.

While Chapter 13 takes more complex legal work, it might be a better solution for the client.

Bankruptcy Basics

Chapter 7 of the bankruptcy code simply allows you to write off or escape your debts -- except those noted above. It shouldn't take more than a few months. But in Chapter 7, you lose all your major assets, with the exception of some exempt necessities. A Chapter 7 bankruptcy will stay on your credit report for 10 years.

Under the new law, you have to "qualify" to file a Chapter 7 bankruptcy. You'll have to file documents including your most recent income tax return and wage stubs. If you have a certain level of income, which demonstrates your ability to repay even a portion of your debts, you'll be required to file Chapter 13. And that may not be a bad idea.

Chapter 13 requires you and your attorney to work with the court, your creditors and the bankruptcy trustee assigned to your case to present a repayment plan that is satisfactory to all concerned. You have a period of three to five years to make these agreed upon payments, which are monitored by the trustee.

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