Chapter 7 bankruptcy is the most common type that is filed for. When someone is considering personal bankruptcy, Chapter 7 is what they are typically thinking of, even though there are multiple types or chapters, each with its own set of guidelines, requirements, and restrictions.

The typical consumer might consider filing bankruptcy when they have a mountain of debt that they cannot ever see themselves getting out from under. This is usually not due to financial mismanagement, but an unexpected change in circumstances, such as a job loss, divorce, high medical bills, and other things that the consumer has no control over.

But keep in mind that such a filing does not come automatically or without sacrifice. As opposed to how easy things were in previous years, the new bankruptcy laws make it significantly more difficult. You cannot, for example, just wake up one morning and decide to file Chapter 7 bankruptcy, and have it done by dinner time.

If you miss a step in the mountain of forms being filled out, this will typically put you all the way back to square one to start the process over from the beginning, so it is important that you understand bankruptcy law before you start. The court will look at your financial records in great detail, and then make a ruling. In other words, just because you want to file bankruptcy, the court may not allow it, it needs to be approved.

In addition, you need to understand the source of your debt. For example, there are certain kinds of debt, including IRS liens and federal student loans that are not discharged by bankruptcy. So if those types of debts make up a large percentage of your overall financial obligations, any chapter of bankruptcy is not going to help.

Another disadvantage that you may have already thought of is the fact that a bankruptcy filing is going to stick out like a sore thumb on your credit report for the next 7 to 10 years. That does not mean you will not be able to get credit at all after your filing, but you will definitely find it more difficult and challenging to get credit, and the interest rate you will be charged will be higher, reflecting the fact that the lender knows about your filing and is considering you a higher risk.

With Chapter 7 bankruptcy, you also need to understand that many of your assets will be auctioned off and sold to satisfy your debt. You can keep some assets but the majority will be liquidated. Other chapters do not require this, but then again other chapter simply reorganizes your debt, they do not eliminate it, so you need to understand the type that is best for your situation.

Filing Chapter 7 bankruptcy is not an easy task, and especially with the new laws, it is highly recommended that you use a reputable bankruptcy lawyer to handle the paperwork for you, as well as making intelligent suggestions and even looking at alternatives. The money you spend for the attorney will likely more than pay for itself in terms of the time you invest as well as the assets you are able to retain after all is said and done.