While bankruptcy has many negative effects, it does aid in relief to consumers in financial ruin and provide for a fresh start. However, before filing for bankruptcy, keep in mind that the record will be on your credit profile for 7-10 years, depending on what chapter you are filing for. As early as 1-2 years after bankruptcy, you may qualify for the purchase of a home. The Federal Housing Administration (FHA) and Department of Veteran Affairs (VA) have specific guidelines they follow to accept borrowers who have filed for bankruptcy. Always be sure to research your loan options carefully, read all small print and know your rights no matter what lender you are dealing with.

Chapter 7 Bankruptcy
Chapter of the Bankruptcy Code that provides for liquidation or sale of the debtors nonexempt property so that the creditors may receive a portion of what is owed to them. In order to file for a Chapter 7 Bankruptcy, a "means test" is given to the consumer so that the court can adequately determine whether the consumer is eligible for this type of pardon. This type of bankruptcy will remain on the debtors credit file for 10 years from the date of filing.

Chapter 11 Bankruptcy
Chapter of the Bankruptcy Code that is usually used for the reorganization of a partnership or corporation, however individuals can use this filing as an alternative to a Chapter 7 bankruptcy as well. The debtor proposes a plan of reorganization to keep its business active and pay its creditors over time.

Chapter 13 Bankruptcy
Chapter of the Bankruptcy Code in which debtors repay debts according to a plan accepted by the debtor, the creditors and the court. This allows the debtor to keep all property but use disposable income to repay creditors over time. A timeframe of 3-5 years is usually established. Payments are paid to creditors through the bankruptcy trustee who collects the payments and oversees the debtor's plan. This type of bankruptcy remains on the debtors credit file for 7 years from the date of filing.

On October 22, 1994, the Bankruptcy Reform Act of 1994 was signed into law by President Clinton. This act contained many provisions for both business and consumer bankruptcy. Debtors are now being urged to file for Chapter 13 to reschedule their debts rather than filing for Chapter 7 which liquidated them. In 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This act makes it more difficult for consumers to file for Chapter 7 bankruptcy.