The legal process overseen by federal courts, bankruptcy is a system designed to help individuals and businesses discharge debt accumulated. This process can be used to eliminate all or part of the said debtor to repay a smaller portion of what they owe.

Filing for Bankruptcy can help you find relief, but it is important to be aware that declaring bankruptcy can have many risks including and not subject to long-term effects on your credit. The effects of filing for bankruptcy can remain on one’s credit report for up to ten years. It may also affect your ability to get approved for loans with more favorable rates.  a

The form of bankruptcy that most people think of when considering filing is what is known as “Straight Bankruptcy” or Chapter 7.  This type of bankruptcy requires the filer to have a trustee from a federal court to supervise the sale of any assets that aren’t exempt. Certain assets, such as cars or work-related tools, and basic household furnishings may be exempt. All profits from the sale are then put towards your debt and once the remaining balance is discharged it is eliminated. Although Chapter 7 is a powerful option, it can’t eliminate all types of debt. You may still have to pay back student loans, some taxes, alimony, and child support.

Overall Chapter 7 can give you a significant chance to change your life, it is also extremely risky. You will most likely lose property; your credit score will be decimated and will remain on your report for up to ten years. Lastly, if you get into debt once again, you cannot file again for at least eight years.

Another type of popular bankruptcy, Chapter 13 works by allowing you to keep your property in exchange for partially or completely repaying your debt by paying on your debt for three to five years. Depending on what’s negotiated, any remaining debt is thus eliminated or discharged at the end of the plan, even if you only repaid part of what you owe.

Compared to Chapter 7 or other types of bankruptcy, Chapter 13 may be the more favorable option. Typically, you repay only part of your debt, and you may be able to retain some of your assets. Also, Chapter 13 does not remain on your credit report for as long as other forms of bankruptcy, and you can file again in as little as two years.

Bankruptcy can be a large burden and cause more problems than it is worth. Thus, there are several alternatives to bankruptcy. Most will also affect your credit, but nowhere near as bad as a bankruptcy. Unlike with bankruptcy though, you may be able to keep your property rather than having it sold during a bankruptcy.

Here is a comprehensive list of alternatives to bankruptcy:

• Seek help from a government-approved credit counselor or debt management plan. A said counselor can work with the creditors to come up with a plan that works for both parties.
• Debt Consolidation Loans, by compiling all your debt into a single lower-interest loan you may be able to repay your debt without putting your property at risk and ruining your credit.
• Strike a deal with your creditors for a more manageable repayment plan. This will keep you from defaulting on your debt and your creditors would be happier and more willing to work with you.

These are just a few ways other than filing for bankruptcy to repay your debt, but no matter what you do, failing to honor any debt-repayment terms will affect your credit. That said, bankruptcy still has a more serious impact on your future.

Bankruptcy does not necessarily erase all financial responsibilities.

It does not discharge the following types of debts and obligations:

• Federal student loans (unless you meet strict criteria)
• Court-ordered alimony and child support
• Debts that arise after bankruptcy is filed.
• Some debts incurred in the six months before filing bankruptcy.
• Some taxes
• Loans obtained fraudulently.
• Debts from personal injury while driving intoxicated.

It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you did not or could not pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.