Bankruptcy

What bankruptcy is

Bankruptcy is a legal process supervised by a federal court that may discharge or reorganize qualifying debts. It is generally considered a last-resort option due to its long-term credit impact and the legal complexity involved.

Chapter 7 — Liquidation

• May discharge many unsecured debts like credit cards and medical bills
• Subject to a means test based on income
• Non-exempt assets may be sold to pay creditors
• Typically remains on credit reports for up to 10 years

Chapter 13 — Reorganization

• Uses a court-approved repayment plan, usually 3 to 5 years
• Allows you to keep certain assets while catching up on debts
• May help with mortgage arrears and other secured debt
• Typically remains on credit reports for up to 7 years

Debts that often cannot be discharged

• Most student loans (with limited exceptions)
• Most recent tax debts
• Child support and alimony
• Court fines and certain restitution

Important considerations

• Significant and long-term credit impact
• Court filing fees and attorney costs
• Required credit counseling before filing
• Potential effects on housing, employment, and future borrowing

When to talk to a professional

Bankruptcy is a legal decision with permanent consequences. Speak with a qualified bankruptcy attorney to understand whether it fits your situation and what the alternatives may be.