Personal bankruptcy as an option for dealing with debt should be the "last resort" option because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for seven to 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or even get a job.
The new Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect in October 2005, makes it harder to file for Chapter 7 bankruptcy and steers more people toward repaying a portion of their debts through a Chapter 13 bankruptcy. Instead of wiping out debts under Chapter 7, many debtors will have to establish up to five-year repayment plans under a Chapter 13 plan.
This law includes several changes that might affect you. You won't be allowed to file for Chapter 7 if your income is above your state's median and if you can afford to pay 25 percent of your unsecured debt. You also may not discharge new debt. If you have credit card debt, cash advances, and other forms of consumer debt borrowed within 70 days of a bankruptcy filing, it might not be discharged under the new law. The court will review your finances and determine how much you have available to pay debts, and you will be required to undergo credit counseling before applying for bankruptcy.