Bankruptcy is an option many people know about, but don't know how it affects them and details associated with it. Bankruptcy is "being legally declared unable to pay your debts."

Contrary to popular belief, bankruptcy does not wipe out all debts. Student Loans, Alimony, Support Payments, and other legally imposed debts are not affected by bankruptcy, and you must still pay these debts if you go bankrupt.

Most consumers filing bankruptcy could have taken other steps to liquidate their debts, and some are undoubtedly regretting their decision. Bankruptcy is not easy and has severe long-term effects on your financial well-being.

There are two main types of bankruptcy for consumers. These are Chapter 13 (Personal Reorganization) and Chapter 7 (Straight) bankruptcy.

Chapter 13
This is called Personal Reorganization because you reorganize your financial situation and propose a repayment plan to pay as much of your debts as you can in 3-5 years. Debts not paid within this period of time are discharged by the court.

Chapter 7
The court forces you to sell certain ownings to pay back debts. If debts are still not paid for after you sell your ownings, they are discharged by the court. You do get to keep a certain percentage from property sold.

Bankruptcy's Effect On Your Future

• Stays on your record for 10 years.

• Can inhibit your credit worthiness.

• May interfere with potential employment.

• Landlords may consider it when renting.

Alternatives to Bankruptcy

• Contact your creditors, and try to work out some sort of repayment plan.

• Financial counseling (such as your local Consumer Credit Counseling Service) may be able to work something out with your creditors and help you organize your budget so you can pay debts.

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The above Consumer Credit Information is provided by the Federal Trade Commission, Washington D.C.