There is a new Bankruptcy Law entitled, "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)," consisting of new rules that determine whether or not you can file under Chapter 7.

According to experts, "the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your current monthly income against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy. If it is more than the median, however, you must pass the Means Test, a requirement of the new law, in order to file for Chapter 7."

One of the conditions requires is that you complete credit counseling with an agency that is approved by the U.S. Trustee's office, regardless of whether or not you need to file. The reason for this is to determine whether or not bankruptcy is necessary, or if proceeding with a repayment plan that both you and the creditors can live with can be initiated instead.

If the agency cannot resolve the situation with a suitable repayment plan, this will be given to the court in conjunction with a certificate stating that counseling has been completed. Subsequently, bankruptcy will commence. Once the case has been adjudicated, a final counseling session is mandated. Upon showing completion of this session, the court will discharge all debts under the existing bankruptcy law.

Although Chapter 7 is the most common type of bankruptcy used, there are two other types. Chapter 11 is for individuals who wish to repay their debt. Chapter 13 is similar except that the debt is paid over a specific time period or is used in cases where a Chapter 7 filing is not applicable.

You may have seen a TV ad in which a so-called "lawyer" insists that bankruptcy is the way to go. This is not the case. For one thing, your FICO score suffers a horrible death; you will have to begin to build up your credit by applying for a debit card through a credit card company. If, after one year, you have make monthly payments on time and did not exceed the credit line, you can ask the company to provide you with a credit card. However, in today's economic climate, this may be more difficult to achieve.

Bankruptcy is a personal decision, one that carries with it many consequences. So think hard and long before you even consider this last resort.