Declaring bankruptcy is truly the only way to erase without paying it off. It is true that new bankruptcy laws have placed restrictions on filing for bankruptcy, but many of these restrictions can be dealt with effectively, permitting you to use the bankruptcy law to erase your debt.

Take a Credit Counseling Course

The new bankruptcy law requires every individual filing for Chapter 7 bankruptcy to complete a credit counseling course within six months of filing. The U.S. Trustee program maintains a list of qualified credit counselors who are authorized to give you the course, certify your compliance, and let you get on with your life. You may also get this approved list from your bankruptcy attorney. Many courses are offered online, making it very convenient for you to complete the course.

Take a Financial Management Course

Before you can erase your debts by having them discharged in bankruptcy court, you must also complete an approved Financial Management Course. Again, you can get a list of approved courses from the U.S. Trustee program or from your bankruptcy attorney. You can also take this course online.

The Means Test

Under the new law, debtors must pass a means test before the law permits them to erase in bankruptcy. The means test is based on the annual income of the individual or family that is declaring bankruptcy, and it is adjusted based on family size, up to four people. The government recognizes the economic disparity of different parts of the country, and it applies a different means test for every state.

Under the means test, for example, the lowest median income is $30,424, for a single debtor in the state of Mississippi. The highest median income is $48,030 for a single debtor in Washington.

Even if your income is slightly higher than the median income in your state, you may still be able to avail yourself of chapter 7 bankruptcy protection and erase your debt. Consult you bankruptcy lawyer for details.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy differs from Chapter 11 bankruptcy in that Chapter 7 erases your debts, particularly credit card debt, medical bills and collections. Chapter 11 is a repayment program that takes 3 to 5 years to complete. Chapter 7 bankruptcy can be done in as little as 90 days and is to be considered a fresh start for the debtor(you). All non-exempt property is turned over to the bankruptcy trustee, and your attorney can help you determine what is exempt and what is non-exempt. Laws vary from state to state, but as an example, if you have lived in your house for over 3 years, the equity in your home is exempt up a certain amount. In Nevada, if you have lived in your home for at least 3 years and 4 months, your home equity is protected up to $350,000. The same principle applies to cars, IRA retirement accounts, etc. Again, check with your attorney to see what protections you have in your state.

Since Chapter 7 filers very rarely have any assets to speak of though, no property is usually turned over to the trustee, and the debtor's debts are discharged within approximately four to six months. Chapter 7 may be the best single option you have to erase your if you feel you have no other solutions.