Recent legislation passed by Congress has brought about the most sweeping changes in U.S. bankruptcy law in twenty five years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will eliminate the opportunity for most Americans with debt problems to file for bankruptcy under the rather forgiving Chapter 7 of the bankruptcy code. A Chapter 7 filing allows the court to wipe out most personal debt, allowing the debtor to begin over again and make a fresh start.

Proponents of the bill, including the major credit card companies, claim that this is costing them millions of dollars per year.

The new law will require most filers to file under Chapter 13 instead, which requires a five year, court-ordered repayment plan. The credit card companies say that this will save them money, and that savings can be passed on to customers. Some filers will still be able to file under Chapter 7, provided that they pass a “means test” which determines their eligibility in terms of annual income.

Most will have to file under the more stringent Chapter 13. One thing will remain the same no matter how the debtor files for bankruptcy - student loans are exempt from being eliminated in court.

Bankruptcy is not a free ride; it does come with some strings attached. The filing will remain on the debtors credit report for ten years, and may affect future attempts to obtain loans, housing or a job. Furthermore, the debtor may not file for bankruptcy again for another six years, so any debts incurred after the filing must be paid in full.

Several years ago, Congress enacted legislation that exempted student loans from elimination through bankruptcy. This applies not only to Federally issued student loans, but also to privately funded, for-profit loans. What this means is that anyone with a student loan, even if it amounts to more than $100,000, must repay it, even after filing for bankruptcy. Other personal debts may be wiped out, but the student loans will not go away.

For those with large student loan obligations, it may be worth their while to seek consolidation through their lender. If that is not an option, the borrower should see if it is possible to negotiate a more favorable repayment plan. It may also be possible to consolidate the payments through another loan, such as a home equity loan or home equity line of credit (HELOC)

Should any of these options not be workable, then those with student loans should be aware that their lenders and the lenders debt collectors will be remaining in touch for a number of years to come. Money spent on education is certainly money well spent, and Congress has made it clear that if you borrow money to pay for education, you will have to repay it.