Frequently Asked Questions About Bankruptcy

Bankruptcy can provide a fresh financial start for individuals and businesses overwhelmed by debt. Here are answers to the most common questions about the bankruptcy process.

What Is Bankruptcy?

Bankruptcy is a federal legal process that allows individuals and businesses to eliminate or restructure their debts under the protection of the bankruptcy court. It is governed by the U.S. Bankruptcy Code.

What Are the Different Types of Bankruptcy?

Chapter 7 (Liquidation Bankruptcy)

• Most common type for individuals
• Non-exempt assets may be sold to pay creditors
• Most unsecured debts are discharged (eliminated)
• Process typically takes 3-6 months
• Requires passing a means test

Chapter 13 (Reorganization Bankruptcy)

• Allows individuals to keep their assets
• You repay some or all debts through a 3-5 year repayment plan
• Good option for those with regular income who want to save their home from foreclosure
• Does not require a means test

Chapter 11 (Business Reorganization)

• Primarily for businesses
• Allows continued operation while restructuring debts
• Complex and expensive process

What Debts Can Be Discharged in Bankruptcy?

Dischargeable debts include:

• Credit card debt
• Medical bills
• Personal loans
• Utility bills
• Lease obligations

Non-dischargeable debts include:

• Student loans (in most cases)
• Child support and alimony
• Most tax debts
• Debts from fraud or intentional wrongdoing
• Criminal fines and restitution

How Does Bankruptcy Affect My Credit?

A Chapter 7 bankruptcy remains on your credit report for 10 years. A Chapter 13 bankruptcy remains for 7 years. While bankruptcy significantly impacts your credit score initially, many people begin rebuilding their credit within a year or two after filing.

Will I Lose My Home If I File for Bankruptcy?

Not necessarily. Most states have homestead exemptions that protect a certain amount of equity in your primary residence. In Chapter 13, you can keep your home as long as you continue making mortgage payments and catch up on any arrears through your repayment plan.

What Is the Automatic Stay?

When you file for bankruptcy, an automatic stay immediately goes into effect. This stops most collection actions, including:

• Foreclosure proceedings
• Wage garnishments
• Creditor calls and letters
• Lawsuits

Do I Need an Attorney to File for Bankruptcy?

While you can file for bankruptcy without an attorney (called "pro se" filing), it is strongly recommended that you work with a bankruptcy attorney. The process is complex, and mistakes can result in your case being dismissed or debts not being discharged.

How Much Does Bankruptcy Cost?

Filing fees for Chapter 7 are approximately $338 and for Chapter 13 approximately $313. Attorney fees vary but typically range from $1,000-$3,500 for Chapter 7 and $3,000-$5,000 for Chapter 13.

Find a bankruptcy attorney near you on NinjaLawyers.