Four years ago, the government took steps to crack down on abuse of the bankruptcy system by people who racked up thousands of dollars in debt and then filed for bankruptcy. Some people would repeat this pattern over and over.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes this more difficult. It requires people who file for bankruptcy to get credit counseling and take a debtor education course by government approved organizations.

There are two types of personal bankruptcy commonly used: Chapter 7 and Chapter 13. Both are governed by federal law.

Chapter 7 will wipe out all your debts, yet stays on your credit report for 10 years and is not always approved by the courts if you have a steady income.

If you have a steady job, Chapter 13 allows you the possibility of keeping your home and other possessions if you follow a strict 3-5 year repayment plan and protects you from your creditors.

Chapter 13

Under 2005 bankruptcy law, many people will only be allowed to choose Chapter 13.

Because it only stays on your credit report for 7 years and allows you to keep your belongings, financial advisors often say it should be the first form of bankruptcy you consider.

It is available as an option if you owe less than $250,000 in unsecured debt, such as credit card debt or medical bills and/or less than $750,000 in secured debt, such as a mortgage and car loans.

However, this form of bankruptcy can be expensive. Under Chapter 13 bankruptcy, you must keep paying your mortgage and also pay a portion of the amount of debt you have fallen behind on until you are caught up.

You also pay a fee to the court – usually 10 percent of your debt — to administer the repayment plan.

Chapter 7

Under Chapter 7, you must compile a list of all your debts and all your belongings and submit it to the court. A judge will decide which of your debts to dismiss and which or your belongings to sell. Once your assets are sold, the money will be used to pay off as much as your debt as possible. You will no longer be responsible for the debts that are dismissed.

Most courts will not dismiss debts for child support, alimony, most taxes and most student loans. In addition, cash advances or debts racked up within 60 days of the bankruptcy filing, such as those to a single creditor for more than $1,000 in luxury goods or services are not considered for dismissal.

The decision to file for bankruptcy is a highly personal one, based on your particular financial situation. It should only be considered once you have dug deep to tighten your budget and sought credit counseling.

Filing for personal bankruptcy has long lasting repercussions. It can affect your credit — and your life — for as long as 10 years.

It can hurt your ability get a job, buy or rent a car or home and even to purchase insurance. Employers, landlords and insurance companies are increasingly relying on credit reports to help them make decisions.

A bankruptcy filing can even make it next to impossible to hold onto your bank accounts and credit cards.

Keep in mind, if you have a steady job and just aren’t juggling your debts adequately or are living beyond your means, a judge may not even grant you a bankruptcy filing.

If you have a steady income and still can’t make ends meet despite your best efforts to do so, you may consider filing for Chapter 13, which will allow you to keep some of your belongings, such as a house or car with a 3-5 year repayment plan. This type of filing will remain on your credit report for 7 years.

If you don’t have a job or steady income you may consider filing for Chapter 7, which will allow you to erase most of your debts, but will affect your credit report for 10 years.

However, both forms of personal bankruptcy will not erase debts such as student loans, recent taxes owed, child support or alimony.

With all these warnings, sometimes filing a bankruptcy is inevitable to escape mounting debts.

If you are facing court orders that will grant your creditors the right to garnish your wages or even raid your bank accounts, then maybe filing bankruptcy is an option worth considering.

Just remember it is a last resort that can have long-lasting negative consequences on your life and lifestyle. Before it is embarked on, you should meet with an attorney or financial advisor to have them determine whether your particular financial crisis will be solved by bankruptcy filing.