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Bankruptcy Guide

Introduction to Bankruptcy

Bankruptcy is a legal process that helps individuals or businesses unable to pay their debts to get a fresh start. The process begins when the debtor or creditor files a petition with the bankruptcy court. In this guide, we'll cover the key concepts related to bankruptcy.

What is Bankruptcy?

Bankruptcy is a legal status involving a person or business that cannot repay their outstanding debts. The bankruptcy process usually begins with a petition filed by the debtor or on behalf of creditors, and it results in the assets of the debtor being used to repay a portion of outstanding debt.

The Bankruptcy Process

Here, we'll discuss the general bankruptcy process, which includes filing a petition, creating a repayment plan, and discharging debts.

Filing a Petition

The bankruptcy process begins with the debtor or creditors filing a petition in bankruptcy court. Filing the petition triggers an automatic stay, which stops most collection efforts against the debtor.

Creation of a Repayment Plan

For some types of bankruptcy, the debtor will need to propose a repayment plan. This plan outlines how the debtor will pay back their debts over a period of time.

Discharge of Debts

At the end of the bankruptcy process, the court will discharge the debtor's remaining debts, which releases the debtor from personal liability for specific debts.

Types of Bankruptcy

There are several types of bankruptcy, each suited to different circumstances. The two most common are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as "liquidation bankruptcy," involves the sale of a debtor's non-exempt assets by a trustee. The proceeds are used to pay creditors, and many of the debtor's remaining debts are then discharged.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, or "reorganization bankruptcy," enables debtors with regular income to create a plan to repay all or part of their debts over three to five years.


Bankruptcy is a significant decision with both benefits and drawbacks. It can provide a fresh start for those overwhelmed by debt, but it also has long-term impacts on one's creditworthiness. Understanding the process, outcomes, and alternatives is crucial.

Frequently Asked Questions

1. What is bankruptcy?

Bankruptcy is a legal status that occurs when a person or entity cannot repay their debts. It provides the debtor with a way to get a fresh start, while also providing creditors with a means of obtaining some repayment based on the debtor's available assets.

2. How does bankruptcy work?

Bankruptcy begins with the filing of a petition in bankruptcy court, usually by the debtor. Depending on the type of bankruptcy, a repayment plan may be created or assets may be sold to repay debts. At the end of the bankruptcy process, most of the debtor's remaining debts are discharged.

3. What are the different types of bankruptcy?

The most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 involves the liquidation of the debtor's non-exempt assets to repay creditors, while Chapter 13 allows debtors with regular income to create a plan to repay their debts over time.

4. Who can file for bankruptcy?

Both individuals and businesses can file for bankruptcy. However, certain conditions must be met, such as undergoing credit counseling for individual bankruptcy or demonstrating insolvency for business bankruptcy.

5. What happens when you file for bankruptcy?

When you file for bankruptcy, an automatic stay is triggered that stops most collection efforts against you. Depending on the type of bankruptcy, a trustee may be appointed to sell your non-exempt assets or you may create a repayment plan. At the end of the process, most remaining debts are discharged.

6. How long does bankruptcy stay on your credit report?

A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 bankruptcy typically stays on your report for seven years.

7. Can I keep my home if I file for bankruptcy?

In some cases, you may be able to keep your home when you file for bankruptcy, especially under Chapter 13 bankruptcy. However, this depends on various factors, including the amount of equity you have in your home and your state's homestead exemption.

8. How does bankruptcy affect my credit?

Bankruptcy typically has a negative impact on your credit score and can stay on your credit report for up to 10 years. However, over time and with good financial habits, you can start to rebuild your credit after bankruptcy.

9. Can all debts be discharged in bankruptcy?

Not all debts can be discharged in bankruptcy. Generally, unsecured debts like credit card debt and medical bills can be discharged, but other debts like student loans, child support, and certain tax debts are usually non-dischargeable.

10. How often can I file for bankruptcy?

The frequency with which you can file for bankruptcy depends on the type of bankruptcy. After a Chapter 7 bankruptcy discharge, you must wait eight years before filing for Chapter 7 again, and four years to file for Chapter 13. After a Chapter 13 discharge, you must wait two years to file for Chapter 13 again, and six years to file for Chapter 7, although exceptions may apply.

11. What is the role of the trustee in bankruptcy?

In a bankruptcy case, the trustee is appointed to manage the debtor's estate. The trustee's responsibilities depend on the type of bankruptcy but may include selling the debtor's non-exempt assets to pay creditors in a Chapter 7 case or overseeing the debtor's repayment plan in a Chapter 13 case.

12. How do I know if I should file for bankruptcy?

Deciding to file for bankruptcy is a significant decision that depends on various factors. These may include the amount of debt you have, your current income and expenses, and whether you can repay your debts outside of bankruptcy. Consulting with a credit counselor or bankruptcy attorney can help you make an informed decision.

13. Can I get a credit card after bankruptcy?

Getting a credit card after bankruptcy can be challenging, but not impossible. Some lenders offer "secured" credit cards to people who have been through bankruptcy. These cards require a deposit that serves as your credit limit. Over time, responsible use of a secured card can help you rebuild your credit.

14. What is an automatic stay in bankruptcy?

An automatic stay is a provision in bankruptcy law that temporarily stops most creditors from pursuing collection efforts against the debtor. This includes actions like wage garnishments, evictions, foreclosures, and utility disconnections.

15. What is a bankruptcy discharge?

A bankruptcy discharge is a court order that releases the debtor from personal liability for certain types of debts. This means the debtor is no longer legally required to pay any debts that are discharged.

16. What is exempt property in bankruptcy?

Exempt property in bankruptcy refers to property that the debtor is allowed to keep during and after bankruptcy. The specific types and values of property that can be exempted vary by state.

17. Can I file for bankruptcy without a lawyer?

While it's possible to file for bankruptcy without a lawyer, it's not generally recommended due to the complexity of bankruptcy laws and the potential consequences of making mistakes during the process.

18. How much does it cost to file for bankruptcy?

The cost to file for bankruptcy depends on the type of bankruptcy and can include court fees and attorney fees. As of 2021, it costs $338 to file for Chapter 7 bankruptcy and $313 to file for Chapter 13 bankruptcy, not including attorney fees.

19. What is a bankruptcy means test?

The bankruptcy means test is a method used to determine if a debtor qualifies for Chapter 7 bankruptcy. It takes into account the debtor's income, expenses, and family size to determine if the debtor has enough disposable income to repay their debts.

20. What are the long-term impacts of bankruptcy?

The long-term impacts of bankruptcy can include a negative impact on your credit report for up to 10 years, difficulty obtaining credit or loans, and potential impacts on employment or housing. However, bankruptcy can also provide a fresh start by discharging debts and allowing the debtor to start rebuilding their financial life.