If you want to understand bankruptcy, you need to first understand that there are two types of bankruptcy available to consumers. The most common type of bankruptcy is Chapter 7, which wipes your debt slate clean but in addition requires you to liquidate major assets. Chapter 13 bankruptcy is a way for you to repay your debt over a period of three to five years, as supervised by a court. Chapter 13 is especially common for consumers that are facing foreclosure on their homes.

When you file Chapter 7 bankruptcy, almost all debts are discharged. This includes just about everything except for back taxes, child support and student loans. To qualify for Chapter 7, you need to earn less than the median income for a family of your size in your state.

The question of whether you should file bankruptcy or not is a highly individualized one. The process of filing bankruptcy is complicated, and you’ll come out on the other end with severely damaged credit. If you can avoid bankruptcy, you can make life easier in the long run. On the other hand if you’re drowning in debt that you’re not able to pay, then bankruptcy may be the best option for you.

Before you are allowed to file for bankruptcy, you’re required by law to consult with a consumer credit counseling service. In fact, working with a service like this is integral to determining whether or not you should file bankruptcy. The credit counseling service will help you to examine your income and your bills, and set a budget than allows you to repay your debt. The agency will also be able to negotiate with your creditors in order to reduce or avoid late fees, interest penalties, and lower your monthly payments in the process.  In many cases, this consumer credit counseling process can help avoid having to file for bankruptcy altogether.

After you file for bankruptcy, you have to complete a debtor-education course, which will help to teach you how to budget your money and how to carefully use your credit. The course must be approved by the Justice department. The same holds true for the credit counseling service that you must see before filing bankruptcy.

If you’re looking into bankruptcy, you need to talk to an attorney. Filing bankruptcy is a complex process, and you should choose an attorney who specializes in bankruptcy.  If you’d like a confidential recommendation or two, please don’t hesistate to ask.