Filing for Bankruptcy

Bankruptcy is a term that is commonly thrown about, especially towards people who are in financial trouble. Bankruptcy is very much an extreme solution. It does have many positive benefits and might be the only way out for someone who is in a very difficult financial situation. But it doesn’t come without a cost, and the effects of bankruptcy can follow someone for several years.


When is it worth it?

Bankruptcy is something that should only be considered in extreme situations, where it doesn’t seem like there’s any way out of debt. This isn’t always easy to assess. There are a couple of common warning signs that can help to determine whether or not bankruptcy is the right choice. These include being hounded by bill collectors, being unable to make more than the minimum payments on debt, or using credit cards to pay for basic life necessities. The other big factors are how much you’re making at work, and how long you’ve been in debt. Someone who has a well-paying job and has only recently fallen into debt shouldn’t jump the gun on bankruptcy.

Chapter 7 Bankruptcy

There are a couple of different types of bankruptcy, with Chapters 7 and 13 as the most common for individuals. Chapter 7 bankruptcy is typically referred to as straight bankruptcy. With this bankruptcy, your assets are liquidated and used to pay off as much debt as possible. In this version, practically all of the assets are seized, including homes and vehicles. Something else to keep in mind with Chapter 7 is that it doesn’t exclude any co-signers, who will still be responsible for paying off their portion of the debt.

What gets Liquidated?

The list of items that gets liquidated are large, and can ultimately vary from person to person. The necessity and the overall value of the item determine whether or not it gets liquidated. For example, someone won’t be asked to sell their clothing to pay off their debt, unless they owned luxurious items that aren’t deemed necessary, such as fur coats. Anything that you use for work will be exempt, as well as anything that you get from a public benefits program like unemployment or welfare.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is known as reorganization bankruptcy. This allows people to pay off their debts in a period of three to five years. During that time, payment plans are set in place. Unlike with Chapter 7 bankruptcy, Chapter 13 bankruptcy doesn’t require you to give up your home or your vehicle. Eligibility is harder for Chapter 13, and requires applicants to prove that, given time, they’re going to be able to pay off the majority of their debt.

What Debt isn’t Eliminated?

Some debt can’t be removed, even with bankruptcy. These include income taxes that are less than three years old, anything owed in child support or alimony, and any court ordered payment. One of the biggest expenses that isn’t eliminated is debt incurred from student loans. In addition, recent purchases on expensive luxury items are ineligible. This is to prevent someone from making a bunch of extravagant purchases and then declaring bankruptcy so they don’t actually have to pay for them.

Recovering from Bankruptcy

When you file for bankruptcy you have to give up all of your credit cards, and your credit report for the next 10 years will include your bankruptcy. This has a huge effect anytime that someone checks your credit, making it difficult to get a home, vehicle, life insurance, and even a job in some cases. This is why it should be considered a last resort option, because it has such a long term effect on your financial history. It isn’t impossible to recover from, but it is very much an uphill battle. is a privately owned website that is not owned or operated by any government agency.