Under the new law, you must go to a credit counselor prior to filing for bankruptcy. But beware -- since the enactment of the new law, many "fly by night" operations have been set up to take your money and act as credit counseling agencies. The Government has been cracking down on these operators. If you are looking for a reputable credit counselor go to nfcc.org. They can guide you to a reputable credit counselor. Bankruptcy should be the last choice for a person and these counselors will try and find ways to work out your debt, if possible. If you decide you need a lawyer be sure to ask any and all questions you might have before taking this step.

After credit counseling and when you file, you will be required to pass a 'means test'. Essentially, it is an arbitrary test to determine if you can have your debt discharged in the way it was prior to the new law or if you will be forced into Chapter 13, which is essentially a repayment plan. In a nutshell, the means test looks at your income and compares it to the average for where you live. If your income is over the average you will not be allowed to file for a Chapter 7 discharge for your debts.

This new law has significantly cut the filing of new bankruptcy claims in the courts. Many people, after checking into it, realize that the law no longer protects them from their debts as it used to and that the pendulum has swung in favor of the lenders. However, if your income is low and your debt is high you may still qualify under the new law.

Many people realizing that they have no way out and that their debt exceeds half or more of their income simply stop paying. They deal with the debt collection nightmare of phone calls and harassment. If you are the subject of debt collection please refer to our article on your credit rights so you can understand how to limit this harassment. Eventually, things get better as time passes and after about 7 1/2 years all of the derogatory information drops off your credit report. In some ways people are better off this way since a bankruptcy would have kept this information on line for 10 years.

While it is always best and to your advantage to pay off your debts on time, it is important to understand the process and your rights in case things go wrong and you end up in a position where you cannot pay off your debts.