Personal Bankruptcy FAQ

This personal bankruptcy FAQ covers some of the most commonly asked questions made by people facing the decision on whether or not to file a bankruptcy proceeding.

It will explain what the differences between the various chapters of bankruptcy law, how to know if you are eligible to file, and the consequences of filing a bankruptcy petition.

You can use this personal bankruptcy FAQ as a reference for any questions or concerns you have about filing bankruptcy as an indivdual.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is the most common type used by individuals. It is also known as "liquidation bankruptcy". Typically all the property and assets you own will be confiscated and sold in order to pay off your debts. In exchange you are discharged from any remaining obligation to pay those debts.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is an alternative to Chapter 7 for the average consumer. Rather than having all your property liquidated, you work out a scenario in which you will be able to pay off debts and re-establish your finances. It means you can keep some of your most important assets.

Will I lose everything I own?

As you can see from the above, you are more likely to sacrifice property under Chapter 7 bankruptcy. Under Chapter 13 you may have some assets liquidated, but you can usually keep important assets. However, you won’t necessarily lose everything after a Chapter 7 bankruptcy.

Why should I file for bankruptcy?

Bankruptcy provides a chance for a clean slate when you have backed yourself into a position where you can’t possibly repay your debts and other options for solving the problem are not viable. Some people also file in order to avoid foreclosure on a property.

How do I file for bankruptcy?

You must file a petition to the bankruptcy court in your area listing all the debts you owe which you want to have cleared by the bankruptcy filing.

What effect will bankruptcy have on my credit score?

In most cases, bankruptcy has a large negative effect on your credit score. The total effect will depend somewhat on where your credit score starts—someone with a previously spotless record will experience a more noticeable drop in the score than someone who already has bad credit. However, clearing old debts can also make you more capable of paying off future debts, thus rebuilding your credit more quickly.

What property is exempt from bankruptcy?

It depends on the state where you file, but your car, home and any land you own are generally covered as exempt under Federal law when filing under Chapter 7.

Will bankruptcy erase all my debts?

Bankruptcy clears most personal debts, but it cannot erase spousal or child support payments, student or government loans, or loans obtained by fraudulent means.

What are the costs and fees involved?

In total, the fees for a Chapter 13 bankruptcy are $185. Chapter 7 fees are slightly higher, at a total of $200. Using an attorney will add significantly more to the overall costs.

What are the benefits of bankruptcy?

For certain individuals it can eliminate your debts and give you a clean start. This can make it easier to stay on top of any future borrowing you undertake.

What are the alternatives to bankruptcy?

You may not have to declare bankruptcy—in some situations, a debt settlement or debt consolidation plan will be a better option. These can allow you to clear your debts without the possibility of losing valuable assets.

Will I have to go to court?

Not necessarily. Typically you will have a meeting to discuss the bankruptcy proceedings, but no formal "trial" type court appearance in front of a judge.

Do I need a lawyer?

Do I have to file jointly with my spouse?

It depends on who is responsible for most of the debt. If any of the debts are owed on joint accounts it may be wise to file your own bankruptcy petition.

How long does bankruptcy stay on my credit record?

In most cases, ten years. Although you may be able to have it removed after seven years in some states.

Feel free to refer back to this personal bankruptcy FAQ whenever you have questions and concerns relating to the bankruptcy process.