Many people have great misconceptions about filing for bankruptcy.  For example, we often hear potential clients worry that if they file for bankruptcy, they’ll never get credit again.  Or they think that their debts may be cleared, but they’ll walk away with only the shirt on their back, losing their retirement or their home.  Many people think that only free-spenders and the financially irresponsible are the only people who file for bankruptcy, and so they worry about the stigma or moral failure if they have to file.

These are all understandable thoughts, even if they’re misguided.  The truth is:

 

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Yes, your credit will be affected by filing for bankruptcy (for up to 10 years, actually).  But if you’re really considering it, odds are your credit has already taken a hit.  And you’ll probably have a chance to rebuild your credit again soon after your bankruptcy. 

 

You will be able to hold on to many of your assets if you file.  Our job is to find a way to let you hold on to as many of your assets as the law allows.  One of those assets is often a retirement account (so call an attorney before you decide to cash it out).
 

In our experience, the three most common events that make someone consider filing are unemployment, divorce, and/or medical issue. 

 

It’s not our job or place to tell you how you should feel.  But we can say that it’s not worth losing sleep over or panicking.  Your financial situation may feel overwhelming, or you may feel a sense of guilt or shame about even considering the idea of bankruptcy.  But our job is to take some of that worry away.  Here’s some basic information on some common types of bankruptcy:

CHAPTER 7 (liquidation) - Chapter 7 is the most common form of bankruptcy for individuals because it eliminates all eligible debt and allows you to hold onto that property that’s “exempted” by law.  It’s quick, easy, and relatively pain-free.  But as of 2005, filing for chapter 7 became a bit harder. Our job is to get you into a chapter 7 if we can (and you want), and to maximize these exemptions, while allowing you to hold on to as much property as is legally permitted.

CHAPTER 13 (repayment) - Chapter 13 involves a payment plan where you pay back those debts that cannot be discharged and any unsecured debts using your disposable income. Upon the completion of your plan, the remaining debt will be discharged. 

Why file chapter 13 instead of 7?  First, you might not qualify for a chapter 7.  Also, chapter 13 has some powerful tools not otherwise available in a chapter 7.  One example (among many) is that chapter 13 allows you to hold on to any asset you own – even if you’re behind on payments for it - as long as you can afford to now make the payments and maybe catch back up on any missed payments.  It’s a great option for catching back up.  You can often greatly reduce your debt in a chapter 13, sometimes including a “secured” debt like a car payment.  Also, chapter 13 is generally viewed as better for your credit. But chapter 13s are longer and costlier, since these plans run for either three or five year.  They’re also restricted to individuals.  Busineses are ineligible for chapter 13 for bankruptcies. ​

CHAPTER 11 (reorganization) - This type of filing is typically reserved for businesses (think Chrysler), but individuals can (and sometimes must) file for chapter 11.  For example, if someone has debts that exceed the limits of a chapter 13, their only option might be to file a chapter 11.  Don’t worry, the process isn’t as daunting as filing Chrysler into bankruptcy.  And no one is going to call you Lee Iacocca (unless your name actually is Lee Iacocca).