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Frequently Asked Questions

The following information is being provided for informational purposes and is not intended as legal advice.

What is bankruptcy?

Bankruptcy is a legal status. It refers to a person or other entity that is unable to repay their debts and has sought or been forced to seek the ability to modify the debt they owe through the court system. In most jurisdictions, bankruptcy is imposed by a court order and is most often initiated by the debtor.

What are the different types of bankruptcy?

Chapter 7 refers to the chapter of the Bankruptcy Code providing for liquidation - the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors. The court will evaluate the debtor's income and expenses to determine if the debtor may proceed under Chapter 7.

Chapter 11 bankruptcy involves the reorganization of a corporation or partnership. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

Chapter 12 refers to the chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer."

Chapter 13 provides for the adjustment of debts of an individual with regular income, often referred to as a wage-earner plan. Chapter 13 allows a debtor to keep property and use his or her disposable income to pay debts over time, usually three to five years.

Chapter 15 refers to the chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.

How long will bankruptcy stay on my credit report?

A Chapter 7 bankruptcy (liquidation of debts) will generally stay on your credit report for 10 years.

A Chapter 13 bankruptcy (wage-earner plan) will generally stay on your credit report for 7 years from the date of filing.

What property is included in bankruptcy?

When you file Chapter 7 bankruptcy, it typically includes liquidation of all nonexempt assets. Vehicles, work-related tools and household furnishings may be considered exempt, but your other property may be considered nonexempt, and can be turned over to your creditors or sold by a trustee.

If you file Chapter 13, you usually are able to keep many of your assets, as long as you maintain steady income and continue to make your agreed-upon payments.

What debts can't be included in bankruptcy?

Some debts are not dischargeable in bankruptcy, including most student loan debt, back taxes less than three years old, alimony, child support, and debts incurred through fraud.

How will bankruptcy impact by spouse or cosigner?

While you can certainly file bankruptcy as an individual, if you are married and both of you have significant debt, you may consider filing a joint petition for bankruptcy.

If you file separately, only your own debts will be discharged. Therefore, if your spouse has debt that isn't in your name, those will not be impacted. For joint accounts, your debt may be discharged, but the lender can still try to collect from your spouse.

The same is true for a cosigner. If you had a family member or friend cosign on a loan for you, even if the loan is discharged for you, it will not be discharged for your cosigner. The lender will require your cosigner to pay the entire remaining balance of the debt.

For joint property, the impact on your spouse depends on the laws in the state where you live. For the most part, if you own a home, you should have your mortgage qualified for bankruptcy to protect it.

What's pre-filing bankruptcy counseling?

Obtaining a bankruptcy counseling certificate is a prerequisite to filing for personal bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This requirement is to help ensure that consumers are educated about the bankruptcy process.

To obtain the certificate, you'll need to find a qualified bankruptcy counseling agency. It's in your best interest to spend some time finding a reputable agency, as this counseling can be very beneficial to you.

What's pre-discharge education?

Also mandated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, all debtors must complete "an instructional two hour course concerning personal financial management" prior to receiving their bankruptcy discharge. These provisions were included to provide debtors in bankruptcy with the skills and tools needed to avoid future financial problems.

Bankruptcy Glossary

Discharge: May occur during Chapter 7 bankruptcy proceedings; means that you no longer owe any money on that debt.

Exempt assets: Items that are not included in your bankruptcy filing.

Liquidation: When your assets are sold and the proceeds used to pay your debts.

Means test: A test that uses certain parameters to determine whether a debtor may file Chapter 7 bankruptcy for a full discharge of debt. Individuals with too much income after certain expenses are prohibited from filing Chapter 7 unless they qualify as an exception.

Nonexempt assets: Items that are included in your bankruptcy filing, which may be repossessed and liquidated

Reaffirmation: When you agree to new terms with your lenders during the bankruptcy process and do not seek to discharge your debt or cease your access to credit.

Secured debt: Debt represented by collateral, such as an automobile or home. Secured creditors have the right to your collateral in the event you default on payments. Typically, secured debt is not fully discharged in bankruptcy and secured creditors are entitled to certain privileges

Unsecured debt: Debt, such as credit card debt, that is not secured with collateral. During the bankruptcy process, creditors of unsecured debt are not able to repossess your personal property.

Bankruptcy Demographics
  • Average age: 38
  • 44% of filers are couples
  • 30% are women filing alone
  • 26% are men filing alone
  • Slightly better educated than the general population
  • Two out of three have lost a job
  • Half have experienced a serious health problem
  • Fewer than 9% have not suffered a job loss, medical event or divorce
Source: The Fragile Middle Class: Americans in Debt; Elizabeth Warren, Harvard Law School; Smith Business SolutionsCollections

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*Approved to issue certificates in compliance with the Bankruptcy Code. Approval does not endorse or assure the quality of the Agency's services. EOUST regulations do not apply to residents of NC or AL. Approved to issue certificates evidencing completion of a financial management instructional course in compliance with the Bankruptcy Code. Approval does not endorse or assure the quality of a Provider’s services.

The information provided throughout this website should be understood to be a general discussion of the subject matter and does not constitute a legal opinion about your particular situation. For further information or advice, consult a qualified attorney.

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