What is bankruptcy?

About bankruptcy

Bankruptcy is the process by which a consumer officially declares an inability to repay outstanding debts. This is usually a last-resort option, as it is difficult to recover from bankruptcy and it will remain on a consumer’s credit report for ten years after the consumer has discharged the bankruptcy.

Filing for bankruptcy offers a fresh start for consumers who cannot repay their debts, but it can make it difficult to obtain credit, get life insurance, buy a home, or even get a job. There are two types of personal bankruptcy: Chapter 13 and Chapter 7.

Chapter 13 can allow those with a steady income to keep certain property like a house or car. Basically, the court allows the consumer to use future income to repay debts over three to five years.

With Chapter 7, which is also called straight bankruptcy, most of a consumer’s assets are liquidated, with the possible exception of exempt items such as a car or work-related items.

Bankruptcy can get rid of unsecured debt, and stop foreclosures, debt collections, repossessions, and shutting off of utilities. It does not get rid of child support or alimony obligations, taxes, or some student loans.

Before filing for bankruptcy, consumers must get credit counseling for six months from a government approved organization. Bankruptcy is often the last resort of individuals with debt troubles.