Bankruptcy

Bankruptcy is a legal process through federal court. It may allow a person to make a financial fresh start. You may be able to eliminate or restructure certain debts.

 

Bankruptcy may be an option if you are still unable to manage your financial obligations, even if you have tried strategies such as budgeting, reducing expenses, negotiating with creditors, or consolidating debt.

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Federal law requires individuals to complete credit counseling and a financial education course before filing for bankruptcy. A lawyer can explain these requirements and help you decide whether bankruptcy is the right option for you.

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It is important to carefully consider the potential advantages and disadvantages, including:

• Some debts, such as child support, generally cannot be discharged.

• Certain debts, such as taxes and student loans, may only be discharged in some situations.

• Bankruptcy may remain on your credit report for 7–10 years.

• Bankruptcy filings are public records.

• In some cases, individuals with very limited income or assets may already be considered “judgment-proof” — meaning creditors may have little ability to collect payment.

 

Two common types of personal bankruptcy:

Chapter 7 Bankruptcy: Chapter 7 allows certain assets to be sold to repay creditors. This is called “liquidation” bankruptcy. The remaining debts are discharged, and creditors are usually required to stop collection efforts.

 

Chapter 13 Bankruptcy: Chapter 13 involves creating a repayment plan to pay back a portion of your debts. These plans usually last 3–5 years. This option requires a stable income that allows you to make regular payments according to a court-approved plan.

If you are considering bankruptcy, consult with a qualified lawyer who can help you understand your options and decide what may work best for you.