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If you want to have a leisurely afternoon read, then the bankruptcy laws are definitely not for you. I’m here to help clarify the two forms of personal bankruptcy in case you’re considering taking this action:

 Chapter 7: Chapter 7 allows you to discharge or cancel certain debts. This form of bankruptcy makes the most sense when you have significant debts that you’re legally allowed to cancel.

 Chapter 13: Chapter 13 comes up with a repayment schedule that requires you to pay your debts over several years. Chapter 13 stays on your credit record (just like Chapter 7), but it doesn’t eliminate debt, so its value is limited — usually to dealing with debts like taxes that can’t be discharged through bankruptcy. Chapter 13 can keep creditors at bay until a repayment schedule is worked out in the courts.

The Bankruptcy Abuse and Prevention Act of 2005 contains the elements of personal bankruptcy laws currently in effect, which include the following:

 Required counseling: Before filing for bankruptcy, individuals are mandated to complete credit counseling, the purpose of which is to explore your options for dealing with debt, including (but not limited to) bankruptcy and developing a debt repayment plan.To actually have debts discharged through bankruptcy, the law requires a second type of counseling called “debtor education.” All credit counseling and debtor education must be completed by an approved organization on the U.S. Trustee’s website (www.usdoj.gov/ust). Click the link “Credit Counseling & Debtor Education.”

 Means testing: Some high-income earners are precluded from filing the form of bankruptcy that actually discharges debts (Chapter 7 bankruptcy) and instead are forced to use the form of bankruptcy that involves a repayment plan (Chapter 13 bankruptcy). The law does allow for differences in income by making adjustments based on your state of residence and family size. The expense side of the equation is considered as well, and allowances are determined by county and metropolitan area. For more information, click the “Means Testing Information” link on the U.S. Trustee’s website (www.usdoj.gov/ust) under the link for “Credit Counseling & Debtor Education.”

 Rules to prevent people from moving to take advantage of a more-lenient state’s bankruptcy laws: Individual states have their own provisions for how much personal property and home equity you can keep. Prior to the passage of the 2005 laws, in some cases, soon before filing bankruptcy, people actually moved to a state that allowed them to keep more. Under the new law, you must live in a state for at least two years before filing bankruptcy in that state and using that state’s personal-property exemptions. To use a given state’s homestead exemption, which dictates how much home equity you may protect, you must have lived in that state for at least 40 months.