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A bankruptcy filing is a black mark on your credit history. This can make it difficult to obtain loans, mortgages, and credit cards. Both a Chapter 7 and a Chapter 13 bankruptcy will appear on your credit report for 10 years. During this time, you may be subject to several financial hardships.

1. Secured loans may be more expensive to acquire. Only a handful of lenders may approve you for mortgage and car loans. Acquiring a loan or mortgage may require an initial down payment of as much as 50%, and you may need to accept interest rates significantly higher than those offered to people with clean credit histories.
2. Unsecured loans may be impossible to acquire. Credit card companies typically reject applicants with bankruptcies on their credit histories. You may only be able to obtain a secured credit card, which requires a security deposit typically equal to the amount of credit initially granted. Fees for these cards are generally higher than for unsecured cards, and issuers may charge an application fee.
3. Not all retirement account assets are protected. Qualified retirement accounts, such as 401(k)s, are protected in all bankruptcy filings. And, up to $1 million in an individual retirement account is protected. Federal law requires that only those assets needed to support a filer and dependents are exempted, so you may only be able to keep a portion of an IRA account.
4. New legislation makes filing for bankruptcy more difficult. The Bankruptcy Reform Act of 2005 prohibits some people from filing for Chapter 7 bankruptcy; adds to the list of debts that people cannot get rid of in bankruptcy; makes it harder for people to come up with manageable repayment plans; and limits the protection from collection agencies for those who file for bankruptcy. In addition, anyone filing for Chapter 7 or Chapter 13 must undergo credit counseling at their expense six months prior to filing for bankruptcy and will also be required to take a financial-management course after filing.

There was a time when bankruptcy was considered a stigma. Filing for bankruptcy was considered shameful, an admission that one could not manage one’s personal finances.

Today, the stigma appears to have lifted. In fact, rampant credit card debt has driven many Americans to choose the bankruptcy route — more than 1.8 million bankruptcy petitions were filed during the 2005 calendar year.

What Is Bankruptcy?

Bankruptcy was created to protect the financial health of the jobless and the infirmed by eliminating high levels of debt. There are two ways to file for bankruptcy, each with its own rules. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Reform Act) made many changes in bankruptcy law.

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