Bankruptcy

Bankruptcy is a federal legal process designed to help people who cannot realistically repay their debts. It can provide a fresh start, but it is not a quick or painless solution. Bankruptcy has serious consequences that can affect your finances for many years. There are two main types of bankruptcy:

• Chapter 7 Liquidation: This option eliminates most unsecured debts, like credit card balances and medical bills. In exchange, a court-appointed trustee may sell certain non-exempt assets such as a second vehicle, valuable collections, or extra cash to repay creditors. Chapter 7 is relatively fast and typically completed within three to six months.
• Chapter 13 Reorganization: This option allows you to keep major assets, like a home, while committing to a court-approved repayment plan lasting three to five years. During this time, spending is closely controlled.

Bankruptcy does not erase all obligations. Common exceptions include most student loans, recent tax debts, child support and alimony, and court fines and penalties.

A bankruptcy filing remains on your credit report for 7–10 years. Renting housing, qualifying for loans, and obtaining credit can be difficult during that time. Bankruptcy should be a last resort, used only when debt is impossible to repay through any realistic plan.