There are several things to consider before doing anything as drastic as personal bankruptcy. First and foremost, what options are even available to you? Two of the most common debt solutions for most consumers are debt settlement or negotiation, also known as debt reduction, and credit or debt counseling. Before declaring one should investigate both of these options first.

Chapter 13 bankruptcy is a type of personal bankruptcy where a consumer is allowed to reorganize their debt and pay off some or all of the debt over three to five years. The consumer is obligated to turn over to the courts all of their disposable income during this time until their debts are officially discharged.

When someone first begins the process of trying to declare Chapter 7 bankruptcy, the first order of business (besides fulfilling a mandatory 90 minute credit counseling session) for a consumer is to determine their average income over the 6 months prior to the filing date and measuring that against the median income of the state in which they reside.

In 2005, Congress passed legislation that changed the existing bankruptcy system as we knew it. The underlying idea was to make filing bankruptcy much more difficult to qualify for, in particular Chapter 7, and to push more consumers into Chapter 13 Bankruptcy, which involves paying back your debt over 3 to 5 years from your disposable income.