What You Should Know About Filing Bankruptcy

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Filing for bankruptcy can be a difficult decision, but it may be the right financial move depending on your situation. This guide covers key information you should know before taking the bankruptcy route.

An Introduction to Bankruptcy

Bankruptcy allows people or businesses overwhelmed by debt to get a fresh financial start. The two main types of personal bankruptcy are Chapter 7 and Chapter 13.

  • Chapter 7 bankruptcy involves liquidating assets to pay back creditors. Debt remaining after assets are sold is discharged.
  • Chapter 13 bankruptcy sets up a 3-5 year repayment plan to pay back debts over time.

Bankruptcy stays on your credit report for 7-10 years and can make it harder to get loans, credit cards, mortgages, and more. However, it wipes out eligible debt so you can start rebuilding your finances.

The Pros and Cons of Declaring Bankruptcy

Filing for bankruptcy offers some advantages but also has downsides to consider.

Potential Advantages

  • Stops foreclosure, repossession, garnishments, utility shut-offs, and debt collection activities.
  • Wipes out eligible debt like credit cards, medical bills, personal loans, etc.
  • Allows you to keep certain assets like home, car, retirement funds.
  • Prevents creditors from coming after you personally for discharged debt.

Potential Disadvantages

  • Bankruptcy stays on your credit report for 7-10 years, harming credit score.
  • May have trouble getting new loans, credit cards, mortgages, etc.
  • Some debts can’t be discharged like student loans, alimony, taxes.
  • Court trustee takes control of your non-exempt assets.
  • Bankruptcy filing fees can be costly.

Evaluate the pros and cons to decide if bankruptcy makes sense for your situation.

How to File for Bankruptcy

Filing for bankruptcy involves paperwork, court oversight, and legal guidance. Follow these key steps:

  1. Get a credit counseling briefing – Required before filing. Covers bankruptcy basics.
  2. Hire a bankruptcy attorney – Legal expertise navigating the process.
  3. File paperwork with bankruptcy court – Petition, schedules, financial documents.
  4. Attend the 341 meeting – Meet with trustee and creditors.
  5. Complete debtor education course – Mandatory class on financial management.
  6. Get court discharge order – Eliminates eligible debt.

Bankruptcy rules and procedures are complex, so work with an experienced bankruptcy lawyer. Many offer free consultations.

Alternatives to Bankruptcy

Bankruptcy severely impacts your finances, so first explore less damaging options:

  • Debt consolidation loan – Combines debts into one payment.
  • Debt management plan – Creditors may agree to lower interest rates and waived fees.
  • Credit counseling – Get help negotiating with creditors.
  • Sell assets – Downsize house, cars, valuables to pay off debts.
  • Budget diligently – Track spending, reduce expenses, increase income.
  • Debt settlement – Get creditors to agree to lower payoff amount.

If these options fail to adequately resolve overwhelming debts, then bankruptcy may be the last viable resort.


Declaring bankruptcy offers a fresh start but isn’t the right choice for everyone. Evaluate the pros and cons, understand the process, and first pursue less damaging debt relief alternatives before taking this major financial step. With proper planning, you can recover and rebuild your credit over time.