Bankruptcy Means Test
Bankruptcy
Bankruptcy summary:
Bankruptcy could help you get rid of some types of debt through a legal process.
The requirements, timeline, credit impact, success rate, and costs depend on whether you’re filing a Chapter 7 or Chapter 13 bankruptcy.
Consider working with a bankruptcy lawyer because filing for bankruptcy has many rules and consequences.
We can’t advise you on your specific situation. For personalized advice, consult with a qualified bankruptcy attorney licensed to practice in your state.
Bankruptcy Definition and Meaning
Bankruptcy is a legal process that could help you get relief from your debt by working with a bankruptcy court.
There are two main types of bankruptcy (Chapter 7 and Chapter 13) consumers can file for, and each has its own way of providing debt relief. A bankruptcy judge can order your creditors to discharge (forgive) certain debts if you meet the requirements for the type of bankruptcy you’re filing.
Types of bankruptcy
Lots of people have trouble making debt payments, and our legal system has two main ways to help them deal with it.
Chapter 7 bankruptcy
A “liquidation bankruptcy,” where some of your assets (i.e., money and possessions) are sold to repay certain creditors. You must meet income requirements. The process generally takes six months. It’ll stay on your credit report for 10 years.
Chapter 13 bankruptcy
The “wage earner’s bankruptcy.” This bankruptcy type requires you to make monthly payments to certain creditors for three or five years. You get more leeway to keep the things you own. If you complete your repayment plan, a bankruptcy judge will order the remaining eligible debts to be discharged (forgiven). A Chapter 13 bankruptcy stays on your credit report for seven years.
You can also only use bankruptcy to deal with certain types of unsecured debts. Those are debts that aren’t guaranteed by something valuable you own, like a home or car. Credit card debts and personal loans may be discharged in bankruptcy, for example, but not a home equity loan or an auto loan. Although student loans are considered unsecured debts, they’re often more difficult to discharge in bankruptcy.
Both bankruptcy types require you to pay court fees, meet many different filing requirements, and follow state laws for handling your debts and your assets. You don’t have to hire an attorney, but the courts strongly recommend doing so to help ensure you’re able to follow all of the rules and boost your chances for a successful outcome.
Bankruptcy FAQs
Is debt relief the same as bankruptcy?
Debt relief is similar to bankruptcy because it allows you to satisfy unsecured debt for less than the amount owed. However, there are differences.
Bankruptcy is a matter of public record. Debt settlement is a private process. Chapter 7 bankruptcy typically takes a few months, while debt relief usually takes two to four years. Chapter 13 bankruptcy takes three to five years. Debt relief and bankruptcy are similar in some ways. They can both result in you paying less than the full amount you owe.
However, note that about half of Chapter 13 bankruptcies result in full repayment, plus bankruptcy and attorney fees. That means those people might have paid less if they had not filed for bankruptcy. So if you don't qualify for Chapter 7 or you don't want to lose assets, debt relief might help you more than Chapter 13.
What hurts your credit more, debt relief or bankruptcy?
All significant derogatory events hurt your credit, and that includes bankruptcy, collection accounts, and debt settlement.
Can credit card companies sue you after you file for bankruptcy?
Once you file bankruptcy, creditors, including credit card companies, are subject to an automatic stay. That’s a legal order that prevents them from making any collection attempts, including lawsuits. Creditors can file a motion to lift the stay, however, which could be successful if they can show possible bad faith or fraud.
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