Even Smart, Hardworking People File Bankruptcy — Here’s Why
Filing bankruptcy is not a moral failing. In fact, it’s a smart move to protect your key financial assets. If you have a pension fund, 401(k) or IRA plan, declaring bankruptcy can protect your retirement savings, too.
Worried about bankruptcy showing up on your credit report for 7-10 years? See how long your credit score could be negatively impacted if you choose not to file:
7 Years
Late payments, foreclosures, debt collections, defaulted student loans, tax liens (from payoff date), lawsuit settlements and other judgments ruled against you (or until your state’s statute of limitations runs out, whichever is longer), discharged debts.
Indefinitely
Information reported to potential employers for jobs with annual salaries above $20,000; information reported to lenders when you apply for a line of credit or life insurance policy worth over $50,000; unpaid tax liens listed in public records.
Chapter 7 vs. Chapter 13: Bankruptcy Basics
Not sure which one may be right for you? We answer some commonly asked questions below.
| Will filing discharge my unsecured debts (like credit cards and personal loans)? How long does it take? |
YES
Usually within 3-4 months |
NO |
| Can debt collectors/creditors keep calling me if I file? |
NO |
NO |
| Do creditors have the right to garnish my wages if I file? |
NO |
NO |
| Is taking a credit counseling course mandatory in order to file? If so, when should I take it? |
YES
Within the last 6 months |
YES
Within the last 6 months |
| Are there any special criteria that I have to meet? |
YES |
YES |
| My house is in foreclosure. Will filing stop it from going through? How long does that usually take? |
YES
Immediately upon filing |
YES
Immediately upon filing |
| Will I have to appear in court? What if I have a lawyer? |
You must appear in person within 30 days of filing |
You must appear in person within 30 days of filing |
| How long will bankruptcy stay on my credit report? |
10 Years |
7 Years |
| Will I still be able to get credit after bankruptcy? |
YES |
YES |
What Debts Cannot Be Discharged Through Bankruptcy?
While bankruptcy gives those drowning in debt a new beginning, it won’t eliminate everything. The following debts cannot be discharged through bankruptcy:
- Domestic support obligation payments. This typically covers all family court-ordered payments, such as alimony, child support, and property settlement agreements.
- Student loans (in most cases). Student loans are only dischargeable if you can prove “undue hardship” during a formal “adversary proceeding” in court. If student loans make up most of your debt, we recommend consulting an attorney before you file!
- Drunk driving and DUI-related debts. The Bankruptcy Code prohibits discharging any accident-related death and personal injury debts as well as property damage liabilities.
- Debts owed as a result of fraudulent or criminal behavior. You cannot discharge court costs, fines or any court-ordered restitution for breaking the law in any capacity.
- Certain tax burdens. Trust fund taxes are never dischargeable, but the definition varies by state. Income taxes due within the last three years are also exempt from discharge, but an attorney can explain how local and state laws may apply to your specific case.
