Filing for bankruptcy is a major financial decision, but for many people drowning in debt, it's a fresh start. The process is more structured than most people realize — and understanding the basics can help you decide whether it's the right move and what to expect if you go through with it.
Chapter 7 ("liquidation") wipes out most unsecured debt in 3–4 months but may require giving up some assets. Chapter 13 ("reorganization") creates a 3–5 year repayment plan that lets you keep your property. Your income determines which you qualify for.
Federal law requires you to complete a credit counseling course from an approved provider within 180 days before filing. You'll also need a financial management course before your debts are discharged.
If your income is below your state's median for your household size, you typically qualify for Chapter 7. If it's above, you may be required to file Chapter 13 instead.
Student loans, child support, alimony, most tax debts, and recent luxury purchases generally can't be wiped out in bankruptcy. Understanding which debts survive is essential to evaluating whether filing makes sense.
Chapter 7 stays for 10 years, Chapter 13 for 7. However, many people see their credit scores start to recover within 1–2 years after discharge, especially if they had very poor credit before filing.
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