If you have already established your debt management program and are making monthly payments according to the schedule you established with your FFEF debt management counselor, give yourself a pat on the back. You are on the road to recovery. Your choice to make the sacrifice necessary to repay your debts is a much better choice than a bankruptcy alternative.

If you are struggling to make that monthly payment, keep up the fight. Your FFEF counselor understands how difficult it can be and is there to offer encouragement and help every step of the way. There are three things you should be sure you do every month:

1. Make your full scheduled payment and make it on time.

2. Check your monthly statements from your creditors to make sure they are showing your payment was received.

3. Contact your FFEF counselor right away if you are unable to make your scheduled payment.

If the going gets too tough and you feel tempted to consider bankruptcy, you need to be aware of some changes made to the bankruptcy laws. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect on October 17, 2005. It is one of the most comprehensive overhauls of the Bankruptcy Code in more than 25 years, particularly as it applies to consumer bankruptcy.

Individuals can file for bankruptcy in a federal court under two forms of bankruptcy. These two forms are called Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 is a “liquidation” of an individual’s assets. Other terms referred to in this type of bankruptcy include “written off” and “discharged.” This form of bankruptcy is sometimes referred to as “straight bankruptcy.” Some debts, however (such as real estate mortgages), are not written off or discharged and must be repaid. Individuals are allowed to keep certain assets and the guidelines for this vary from state-to-state. Cars are often allowed to be kept, usually because they are critical to a person’s ability to continue to work, but if a loan exists on the car, it must be repaid. Other assets are sold (liquidated) to repay debts. Many types of unsecured debt, such as credit card debt, are legally discharged by the bankruptcy process, which means they do not have to be repaid. There are, however, certain types of debt that are not discharged in a Chapter 7. These commonly include child support, taxes, student loans, and fines imposed by a court for any crimes committed by the debtor. Debts that are not discharged must be repaid.

Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, an individual proposes a plan to repay his or her debts over a three-to-five year period. During this time, the creditors cannot attempt to collect on the individual’s previously incurred debt. In general, the individual gets to keep his or her property, and the creditors end up with less money than they are owed.

While an individual is under a Chapter 13 bankruptcy, he or she is not allowed to obtain additional credit without the permission of the bankruptcy court. More than likely, creditors will not be willing to risk lending money to the individual anyway.

The bankruptcy law requires individuals to complete steps you have already taken—seek the help of a credit counselor, establish whether or not there is enough income to support a payment program, and accept financial education to prevent future bankruptcy filings.

A bankruptcy should always be considered as the last resort for solving financial problems because the long-term results of a bankruptcy exceed any other solution. Your credit report will show a bankruptcy for ten years and make it very difficult to do many of the things you would like to do.

It is, however, a legal procedure that can be used when individuals find themselves under extreme circumstances they can no longer survive. If you do declare bankruptcy, once it is completed and debts discharged, we suggest that you get a couple of credit cards even though you will likely have to pay a security deposit. Don’t rack up debt on them but use them and pay the full balance each month. This will show that you are taking the steps to become financially responsible. Ask your FFEF credit counselor about the options that may still be available to you before taking this legal action.

What Else Should I Know about Bankruptcy?

Utility services: Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay the bills you receive after bankruptcy is filed.

Discrimination: An employer or government agency cannot discriminate against you because you have filed for bankruptcy.

Driver’s license: If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Cosigners: If someone has cosigned a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file a Chapter 13, you may be able to protect co-signers, depending upon the terms of your Chapter 13 plan.

Discharge: You will receive your Order of Discharge officially canceling your debts about four months after your meeting of creditors.

Spouse: Your spouse’s assets are not included in your bankruptcy unless you file together. Likewise, your discharge will not cancel your spouse’s debts. A married couple may file a joint petition but are not required to.