Filing for bankruptcy should always be your last resort. The federal government enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005. Under this act, you are required to undergo credit counseling from a government-approved organization within 6 months before you file for bankruptcy.
The counseling can take place in person, online, or over the phone and lasts about 90 minutes. It may cost around $50, but the fee can be waived in certain circumstances. It is essential to seek counseling with an approved organization.
When bankruptcy is your only option consult an attorney to assist you in the process. There are three types of bankruptcy, Chapter 13, Chapter 7, and Chapter 11.
Chapter 13 Bankruptcy allows you to repay a portion of your debt through a monthly payment plan, which is monitored by a Trustee.
Chapter 11 Bankruptcy is similar to Chapter 13 because it requires you to repay a portion of your debt. This is mainly used by businesses and involves larger amounts of debt than Chapter 13.
Chapter 7 Bankruptcy discharges debts without payment. Some debt cannot be discharged such as taxes, child support and alimony. Student loans cannot be discharged unless extreme hardship is shown, such as disabling illness and five years has elapsed since the loan became due. Under BAPCPA Chapter 7 filings can only be made once every 8 years. Eligibility for Chapter 7 bankruptcy is determined by a means test. An online self-assessment tool is located here: www.legalconsumer.com
Though Student Legal Services attorneys do not handle bankruptcy proceedings, registered students may come into the office to discuss their situation and find resources that may be helpful.